Mutual Funds Research Articles

Monetary policy and equity returns: The role of investor risk aversion

AbstractThis article examines the role of investor risk aversion in the transmission of monetary policy to stock returns based on U.S. data. Our results show that following an expansionary monetary policy shock, investor risk aversion falls, leading to a decrease in the equity risk premium and an increase in equity returns. Moreover, the returns of high‐beta stocks increase much more than those of low‐beta stocks. Finally, we investigate the mechanism through mutual fund flows. We find that high‐beta funds attract greater inflows in response to lower interest rates, and there is a positive relationship between fund returns and flows. Our findings have policy implications for financial stability.

Understanding Mutual Funds Performance with mediation of Human Capital and GDP-Growth in Pakistan Mutual Funds: Demonstration of Structural Equation Model

This work sheds light on the complex interplay between mutual fund performance, using human capital, and GDP growth as mediating variables in Pakistan through the lens of Structural Equation Modeling. By employing this sophisticated analytical approach, the findings uncovered nuanced nexus that traditional methods might have overlooked. The findings underscore the critical role of GDP-Growth and human capital as a mediating factor, suggesting that investments in mutual funds could have far-reaching effects on the financial performance on individual investors. Moreover, the demonstrated link between GDP-growth and mutual fund outcomes highlights the intricate web of economic factors influencing investment landscapes. Our findings thus reveal that the impact of the market factor and GDP growth on portfolio returns shows statistically significant estimates both mediation models. However, size-factor shows two portfolios significant while two portfolios insignificant results using both mediating variables. However, the value factor shows highly significant in both mediating models but reveal insignificant nexus with HC-Growth as mediating variable using only FF3FM. Moreover, momentum factor shows insignificant results for both mediating models. As Pakistan continues to develop its mutual fund market, policymakers and fund managers alike would do well to consider these interconnections in their decision-making processes.

Portfolio Evaluation of Selected Large cap & Midcap Mutual Fund Schemes

"Wealth, place & power are no measure of sources. The only true measure is the ratio between what we might have been & what we have become". In this regard people should upgrade their knowledge & keep in pace with changing technology & market condition to reach their desired goal. As new opportunities are opening up in every field all over the world. The desired goal can achieve only when both theory and practical go together hand in hand. This article is such an attempt to understand or link the theoretical concept with that of practical applicability. It provides an in-depth analysis of Mutual Funds Schemes, encompassing their benefits, various facts crucial to understand and associated risks. Furthermore, the theoretical background of mutual funds, including the types of funds available, their advantages, and potential risks have been dealt with. The study majorly focuses on evaluating the performance of specific mutual fund schemes in the large-cap and mid- cap categories. By analyzing various portfolio evaluation models, including Sharpe, Treynor, and Jensen's alpha, as well as other metrics such as Standard Deviation, Beta, and Portfolio Return, the research aims to identify top- performing funds. The study utilizes correlation analysis and the ARIMA model to forecast the Net Asset Value (NAV) of the highest-ranked funds, providing insights into risk and return profiles, and assisting advisors in recommending suitable investment choices to investors. The study concludes by emphasizing the importance of professional management and diversification in investment, particularly within the dynamic and unpredictable stock market environment. Keywords: Risk, Return, Beta, Standard Deviation (SD), Net Asset Value (NAV) & Assets under Management (AUM), Autoregressive Integrated Moving Average (ARIMA)

Mutual Fund Shareholder Letters: Flows, Performance, and Managerial Behavior

Mutual Fund Shareholder Letters: Flows, Performance, and Managerial Behavior

On the valuation skills of corporate bond mutual funds

Abstract The corporate bond market is larger, more illiquid, and presumably less efficient than the equity market. These features provide numerous profit opportunities for corporate bond mutual funds that are unique to the corporate bond market. However, whether corporate bond mutual funds have the valuation skills needed to take advantage of these opportunities is unclear. We introduce a novel measure to assess the valuation skills of investment-grade corporate bond mutual funds, which we refer to as the valuation accuracy score (VAS). VAS recognizes funds holding more underpriced and less overpriced corporate bonds as ex-ante having better valuation skills. It predicts future fund performance, is stable over time, and is unrelated to other sources of skill. Investors chase the performance of higher-VAS funds more aggressively and exhibit a convex flow–performance relation among these funds.

New accounting standards and the performance of quantitative investors

We examine quantitative investors’ ability to navigate a common and occasionally material change to the financial data generating process: new accounting standards. Returns of quantitative mutual funds temporarily decrease relative to funds that rely more heavily on human discretion following the implementation of a few standards that significantly change key financial statement variables; however, other standards do not appear to have a differential effect. Our result is stronger for quantitative funds using more accounting terminology in their prospectuses and using value strategies, which leverage accounting signals. Excess portfolio turnover following the implementation of accounting standards appears to be a driving factor of the quant underperformance. Additional evidence connects the fund-level results to the specific stocks that were affected by the accounting standards. Overall, our results suggest quant funds are generally proficient at adapting to accounting changes, although material changes occasionally put them at a temporary disadvantage relative to discretionary investors.

ETFs and tail dependence: Evidence from Chinese stock market

Using Chinese A-share market data, we empirically examine the impact of exchange-traded funds (ETFs) on tail dependence of the underlying securities. Our results show that ETFs can increase the tail dependence of stocks in their basket, showing that the average tail dependence of a stock is higher when it has stronger ETF holding similarity with other stocks. We investigate the role of arbitrage activity and find that ETF holding similarity increases stocks’ ETF arbitrage activity. This effect is primarily on discount arbitrage rather than premium arbitrage, which leads to higher tail dependence among stocks. Alongside propagating demand shocks from the ETF market to underlying securities, ETFs also propagate tail event shock from one stock to other stocks in their baskets. Additionally, arbitrage activities through ETFs add a new layer of non-fundamental tail dependence to the underlying securities. Unlike mutual funds, ETFs lead to more frequent and idiosyncratic tail risk contagion among underlying securities. Our study sheds light on how ETFs provide new channels for risk contagion among underlying securities in emerging markets.

Market tempo: Decoding information speed across global stock markets

This study explores the speed of information absorption in global stock markets using the Damodaran model. Analysing daily stock returns from 2005 to 2015 across 25 countries and 26 indices, the research categorizes markets into major, OECD, and emerging types. Major markets demonstrate the fastest adjustment, achieving a remarkable 1-day speed, followed by OECD markets with a 2–4-day span and emerging markets showing a 2–6-day duration for full information absorption. The results highlight significant mean speed variations across these market categories, offering practical insights for international businesses, corporations, and mutual funds navigating financial transactions globally. This study contributes valuable insights into information absorption speed, emphasizing the hierarchy of major, OECD, and emerging markets based on their speediness. Limitations include the exclusive focus on daily stock returns and the absence of specific diagnostic statistics for the Damodaran model.

Growth and Dynamics in the Indian Mutual Fund Industry: Analyzing Investor Preferences and Investment Strategies

Growth and Dynamics in the Indian Mutual Fund Industry: Analyzing Investor Preferences and Investment Strategies

Tradable Risk Factors for Institutional and Retail Investors

Abstract We construct tradable risk factors using combinations of large and liquid mutual funds (long leg) and ETFs (exchange-traded funds) (long and short legs), based on their holdings, for both retail and institutional investors. Exploiting a novel dataset, our tradable factors take into account ETF shorting costs. Assessing the performance of our tradable factors against standard “on-paper” factors, we uncover an implementation shortfall of 2–4 percent annually. Shorting fees and transaction costs contribute to 58 percent of the performance differential between tradable and “on-paper” factors, assigning a non-trivial role to the opportunity cost of not trading the exact “on-paper” portfolio.

Gold, platinum, and mutual fund flows

Huang and Kilic (2019) demonstrate that gold to platinum price ratio (GP), which proxies for tail risk in the economy, is a priced risk factor in the cross-section of stock returns. We document that GP negatively affects the mutual fund flows of the active equity funds. In cross-sectional regressions, we find that funds with high betas with respect to the change in GP (βΔGP) have larger future fund flows, as such funds provide a hedge against economic distress. Further, βΔGP helps predict the future performance of the fund in the next few quarters. βΔGP also relates negatively to the downside risk of the fund, implying that funds could potentially reduce their left-tail risk by tilting towards securities with above average βΔGP. We also examine the flows to active corporate bond funds and passive funds. While these effects of GP are largely observable for passive funds, they are not as strongly observable for corporate bond funds.

A Critical Study of Behavioural Factors Affecting Mutual Funds Investors with Special Reference to Pune District

The recently developed field of behavioural finance makes an effort to comprehend and clarify how investors are largely affected by emotions and perceptive errors in their decision-making process while investing. Psychological work suggests that investors do not behave in such a way in many scenarios. The capacity and ability of individuals to resolve complicated issues is limited, especially decision on financial investment. Behavioural factors play a pivotal role in determining the investment decisions. The study attempts to probe the mutual funds investment decision-making process of investors of Pune district so as to frame a model regarding investment decision-making

Differences of Performance Measurement in Mutual Funds and Their Impact on Investment Decisions

This study discusses the performance of mutual funds in the capital market, divided into conventional and sharia mutual funds. The population of this research is all mutual funds, both conventional and sharia, which are traded on the Bibit application platform. Total of 77 conventional mutual funds and 31 sharia mutual funds. Based on sampling, 17 conventional mutual funds and 9 sharia mutual funds were obtained. The research observation period spans from 2021 to 2023. This research uses a quantitative approach with the Risk-Adjusted Return method, consisting of the Sharpe, Treynor, and Jensen methods. Then it will analyze the differences in performance between conventional and sharia mutual funds. The Mann-Whitney U Test is the analysis technique employed using SPSS 25. The results showed that there was no difference in performance between conventional mutual funds and sharia mutual funds based on the Shape, Treynor, and Jensen methods.

Who is smarter? Evidence from extreme financial risk contagion in hedge funds and mutual funds

We investigate the extreme risk contagion of hedge funds and mutual funds, thereby comparing their performance, and studying whether hedge funds are smarter than mutual funds or vice versa. We construct the Copula-CoVaR model to measure the dynamic and nonlinear extreme risk contagion of hedge funds and mutual funds from January 1994 to April 2020. Our findings suggest that compared with mutual funds, hedge funds are subject to lower extreme risk contagion and offer higher average returns. This outperformance is robust in different crisis periods. Moreover, although almost all types of hedge funds outperform mutual funds, the characteristics of hedge funds have a different impact on the outperformance. Specifically, hedge funds adopting strategies of long/short equity hedge, event-driven, funds of funds, emerging markets, equity market neutral, multi-strategy, and global macro, funds with moderate activism, and illiquid hedge funds are smarter than mutual funds from the perspective of extreme risk contagion.

The craft of portfolio construction in estate planning: A comprehensive review on equity and mutual fund strategies, and its risks

The craft of portfolio construction in estate planning: A comprehensive review on equity and mutual fund strategies, and its risks

The market timing ability of bond mutual funds

We apply the nonparametric methodology of Jiang (Journal of Empirical Finance 10:399–425, 2003) to examine whether bond mutual funds can time the bond market by adjusting their portfolios' market exposure based on anticipated market movement. This approach offers several advantages over the widely used regression-based tests such as Treynor and Mazuy (Harvard Business Review 44(4):131–136, 1966) and Henriksson and Merton (The Journal of Business 54(4):513–533, 1981). In a comprehensive study covering the USA, UK, and China, we find some evidence of positive market timing of bond funds at the individual fund level. On average, bond funds show neutral to slightly negative market timing abilities. After controlling for public information, we find that a smaller number of bond funds successfully time the market based on private timing signals. In terms of categories, we find strong evidence of positive market timing for Government bond funds as a group, consistent with the findings of Huang and Wang (Management Science 60:2091–2109, 2014).

Do investors care about inflation risk? Evidence from global bond portfolio allocation

We investigate whether mutual funds adjust their portfolio allocations in global bond markets in response to country-level measures of inflation risk, specifically inflation volatility risk and inflation cyclicality. Our findings indicate that portfolio managers decrease allocations in countries with higher inflation volatility risk, relative to their overall portfolio exposure to inflation volatility risk. In contrast, inflation cyclicality does not exert a significant influence on global portfolio allocation decisions. We strengthen our results by analyzing funds according to their geographic investment mandates, fund characteristics, and portfolio composition.

Devil in FIPA: the motivations and consequences of frequent inter-industry portfolio adjustments in the Chinese mutual fund market

ABSTRACT Based on the equity asset allocation of Chinese open-end active funds, we examined the potential motivations and economic consequences of frequent inter-industry portfolio adjustments (FIPA) by funds. The research findings indicate that the fund tournament effect compels managers to engage in FIPA. Funds with higher managerial ownership exhibit lower levels of FIPA, suggesting that managers themselves do not favour FIPA. Instead, evidence suggests that fund managers cater to investors’ preferences for FIPA, but there exists an asymmetric effect between top-performing and underperforming funds. Specifically, top-performing funds attract more capital inflows after engaging in FIPA, while underperforming funds tend to engage in more aggressive FIPA, leading to net outflows of funds. Furthermore, the results exclude the motive of funds engaging in FIPA for risk hedging purposes. Finally, we explored the impact of FIPA on the stock market, revealing that fund FIPA delays the incorporation of negative company-specific information into stock prices, ultimately reducing stock price information efficiency.

A Study on Small, Mid, and Large-Cap Mutual Fund Schemes of HDFC and SBI Investment Management Firms.

A Study on Small, Mid, and Large-Cap Mutual Fund Schemes of HDFC and SBI Investment Management Firms.

Perception Analysis of Mutual Funds in Madhesh Province, Nepal

Perception Analysis of Mutual Funds in Madhesh Province, Nepal