Open-end Mutual Funds Research Articles

Did the Covid-19 Pandemic Trigger Herding Behavior?

This study aims to examine the influence of the COVID-19 pandemic on mutual fund herding in Indonesia. The research population comprises open-end mutual funds in Indonesia. By adopting the purposive sampling method, we selected the stock mutual funds registered from 2017 to 2022 as our research sample. We define the 2017-2019 period as before COVID-19 and 2020-2022 as during COVID-19. This study employs CSAD and CSSD as proxies for return dispersion by considering two types of indices as benchmarks, namely LQ45 and IDX Composite. Our study found that COVID-19 did trigger mutual fund herding. However, we failed to find herding behavior when there is a large market movement. Instead, we found reverse herding.

Persistence and Domiciled Mutual Fund Managers Performance: Evidence for South Africa

This paper presents an overview of the South African domiciled mutual fund industry and studies mutual fund performance using a survivorship bias-free sample of 2,843 share class of funds. 4-factor asset-pricing model is used to measure performance, and an additional two factors from the recent framework have been considered [1,2]. This study is able to provide further evidence on the performance of open-end mutual fund managers in a notable emerging market, South Africa. This paper investigates whether mutual fund managers’ inability in developed markets to beat the market, which has been widely proved, also holds in less developed markets. Furthermore, we examine if South African fund managers exhibit persistence in performance. The negative net alpha for South African domiciled mutual fund managers shows that they underperform their respective market benchmarks and are not able to add value. Lastly, consistent with results in developed markets, for all portfolios with different magnitudes, the paper reveals a persistence in performance; however, the effect is attributed to "icy-hands" rather than "hothands."

The proposed mandatory swing pricing regime and the hard close requirement : Practical considerations

In November 2022, the U.S. Securities and Exchange Commission (the ‘Commission’) proposed rule amendments that would require, among other things, open-end mutual funds to implement a mandatory swing pricing regime under certain circumstances (the ‘Proposals’). To ensure that funds receive order information with sufficient time to make a swing pricing determination, the Proposals would require funds to set a hard cut-off time for the receipt of purchase and redemption orders. Currently, the vast majority of investments in open-end mutual funds are made through intermediaries and retirement plans, such that investors who submit orders to intermediaries and retirement plans before the time the fund has established for calculating its net asset value (NAV) generally receive the same day’s NAV, even if the fund receives the order information from the intermediary or retirement plan after NAV is calculated. This is how mutual fund pricing has operated in the US for over 50 years. The Proposals would upend current operations. Under the Proposals, an investor’s order would have to be received by the fund — not a financial intermediary or a retirement plan — before the cut-off time set by the fund for calculating NAV in order to be eligible for the same day’s NAV. If adopted as proposed, the Proposals would require extensive changes to mutual fund pricing systems and infrastructure in the US. In this paper, we acknowledge the arguments against the Proposals by an overwhelming majority of industry commenters and, without undercutting those arguments, we explore practical, regulatory and compliance considerations for funds seeking to better understand how the Proposals might affect their day-to-day operations.

Analyzing the performance of mutual funds in 2021–2022

Subject. The article investigates the effectiveness of mutual funds in 2021–2022. Objectives. The study of the mutual fund market to determine changes in the securities market due to the new political situation in 2021–2022. Methods. The study employs methods of descriptive statistics and comparative analysis. I carried out a thorough literature review. The independent data source for a private investor in Russia, i.e. Invesfunds, served as an information base of the study. Results. The descriptive analysis helped reveal that due to the high degree of uncertainty, increased market and infrastructure risks, there was not only an outflow of funds, but also the closure of a huge number of exchange-traded funds. At the same time, the structure of the inflow changed significantly – it was fully secured by the issuance of shares of closed-end investment funds. In 2022, open-ended mutual funds showed practically no excess profitability, compared to 2021. The key observation of the mutual fund market in 2022 was the influx of investors. Conclusions. The conducted research enables private investors to assess the current situation on the securities market, and, as a result, make a decision on the profitability of investing money. Legal entities, building an investment portfolio, should take into account the difficulties in dealing with foreign assets and, possibly, reconsider the direction of investment towards domestic assets.

PREDICTING PAKISTANS’ MUTUAL FUND PERFORMANCE: AN EVALUATION OF TRADITIONAL AND MODERN MEASURES

Mutual Funds enable small investors to benefit from the capital market with minimal investments, thanks to the expertise of professional managers. This study focuses on the Pakistani Mutual Fund industry and evaluates the suitability of traditional and multifactor asset pricing models in assessing Mutual Fund performance. Since multifactor models are rarely used in Pakistani research, this study employs the CAPM, Fama French, and Carhart models to assess the performance of Pakistan Mutual Funds. Data from 100 open-end Mutual Funds between 2005 and 2017 was collected from the Mutual Fund Association of Pakistan, while risk-free rates data was gathered from the State Bank of Pakistan and stock data from the Pakistan Stock Exchange. Ratio analysis, CAPM, Fama French-3 Factor, and Carhart-4 Factor models were used to analyze the data and determine which model was most suitable. The results indicate that the CAPM affects the market factors of the majority of portfolios. Conversely, the size factor, value factor, and momentum factor in the Fama French and Carhart models have an insignificant effect on the majority of portfolios. The Gibbon Rose Shanken test reveals that the CAPM model is the most suitable for evaluating Mutual Fund performance in Pakistan. The findings of this study have implications for asset management company managers and investors alike. It provides valuable insights into which funds perform better and which types of funds are ideal for investment.

Risks from Investing in Open-Ended Mutual Funds – Impact of Net Asset Value

Risks from Investing in Open-Ended Mutual Funds – Impact of Net Asset Value

Fund Performance and Risk Shifting: Evidence from Bank-Affiliated Funds in China

ABSTRACT Using the China’s stock open-end mutual fund data from 2005 to 2020, this paper finds that bank-affiliated funds outperform unaffiliated funds with similar risk shifting levels. We find that risk shifting of bank-affiliated fund managers is more sensitive to previous performance ranking. Coherently, we collect compensation policy data from 62 fund companies, it is shown that the risk shifting behavior is preliminarily related to the motivational compensation policies. Furthermore, our findings also suggest that skilled bank-affiliated managers are prone to aggrandize the portfolio risk shifting levels to pursue future prominent performance.

Global Risk, Non-Bank Financial Intermediation, and Emerging Market Vulnerabilities

Over the last two decades, the unprecedented increase in non-bank financial intermediation, particularly the rise of open-end mutual funds and exchange-traded funds, accounts for nearly half of the external financing flows to emerging markets, exceeding cross-border lending by global banks. Evidence suggests that investment fund flows enhance risk sharing across borders and provide emerging markets access to more diverse forms of financing. However, a growing body of evidence also indicates that investment funds are inherently more vulnerable to liquidity and redemption risks during periods of global financial market stress, increasing the volatility of capital flows to emerging markets. Benchmark-driven investments, namely passive funds, appear particularly sensitive to global risk shocks, such as tightening US dollar funding conditions, compared to their active fund counterparts. The procyclicality of investment fund flows to emerging markets during times of global stress poses financial stability concerns, with implications for the role of macroprudential policy.

Enterprise digital transformation, breadth of ownership and stock price volatility

We investigate the impact of enterprise digital transformation on the breadth of ownership and stock price volatility. Our findings demonstrate that enterprise digital transformation has enhanced the breadth of ownership. Furthermore, through cross-sectional analysis, we find that this effect is more prominent in firms with lower investor attention, greater stock underpricing, and in regions with higher levels of digitalization. Additionally, we have discovered that the increase of media coverage and investor attention serve as the underlying economic mechanism between digital transformation and ownership dispersion. Our analysis also shows that digital transformation has the potential to worsen stock price volatility. Finally, our examination of open-end mutual funds reveals a digital preference among mutual fund investors; this preference has improved fund flows while exacerbating fund volatility. Our study has practical implications for regulators and corporate managers, as they highlight the impact of digital transformation on investor decision-making.

A Study on the Effect of Portfolio Allocation on Mutual Funds

There are hundreds of mutual funds in the market, each offering different returns. The investors always look at funds which give high returns and have low risk. Thus while making a portfolio the asset management company should make investment allocations where returns are definite and to give justified returns for every rupee the investors pay, considering the different risks.
 
 The objective of the study was to find the short-term effects of portfolio allocation on the performance of mutual funds. The data for the study was consisted of the portfolio allocations and the performance statistics of one hundred and fifty-nine open-ended mutual funds, of which fifty were diversified debt/ income funds and one hundred and nine were diversified equity funds. These funds were further classified into different mutual fund schemes. Each of the mutual funds had a different portfolio and investments were made in different instruments like bonds, certificates of deposit, commercial papers, etc. (in case of debt) and in different sectors like technology, chemicals, services, etc. (in case of equity).
 
 The findings from the study indicate that, for debt funds, allocation in bonds and government securities tend to impact the performance of the fund, while for equity funds, allocation in engineering, energy, and service sector stocks tend to impact the performance of the fund.
 
 Keywords: asset management company, portfolio allocations, returns, performance, debt funds, equity funds.

Evaluation of Performance and Efficiency of Polish Open-End Mutual Funds under High Volatility Environment in Financial Markets

Theoretical background: Retail investors in the financial market have nowadays access to a wide range of investment products. One of the types of such products are open-end investment funds, which by design are asset masses managed by professional entities. Open-end investment funds became one of the more popular financial instruments that retail customers purchase. Purpose of the article: This article aims at determining the efficiency of mutual funds as measured by the rate of return. An important point of the study is to determine whether funds with lower total risk as measured by standard deviation achieved lower losses. Research methods: The research method is an analysis of performance of twenty Polish open-ended mutual funds in three different time horizons, by using classic mutual fund performance measures adjusted for negative returns, i.e. Sharpe, Treynor and Jensen alpha indicators as well as the Israelsen and Treynor ratios adjusted for negative return. Main findings: It has been observed that the high volatility in the financial market had a direct negative impact on the returns of these funds. When comparing the Treynor ratio adjusted for negative returns values it appears that some of the analysed equity funds performed better than, for example, stable growth funds. In case of high volatility in the stock market, both in the long and short term, the analysed stable growth funds did not bring more value to investors in relation to the total risk incurred than balanced or even equity funds, which is particularly noticeable in the case of three-year and annual results. This is because asset diversification did not fully work in the high market volatility seen since the beginning of 2022 mostly due to falling prices of debt securities caused by interest rate increases. The article also contributes to the interpretation of Sharpe and Israelsen ratios in case of similar negative rates of return and different volatility measured, because the Israelsen ratio may not be the best to compare such funds as it prioritizes the funds with lower risk and does not consider relation of risk to return.

Impact of Portfolio Allocation on the Performance of Indian Mutual Funds

Retail investors face a dilemma in selecting funds from among the wide range of schemes available. The past performance of a fund is not always indicative of its future performance, but it is the only quantitative way to judge how good a fund is at present. Investors always prefer funds which give high returns and have low risk. Thus while building a fund portfolio the fund manager should understand the impact of portfolio allocation in different instruments on the performance of the portfolio. The objective of the present study was to find the short-term effects of portfolio allocation on the performance of mutual funds. The data for the study consisted of the portfolio allocations and the performance measures of a sample of one hundred and nineteen open-ended mutual fund schemes, of which thirty-eight were diversified debt/ income funds, forty-eight were diversified equity funds, twenty-one were balanced funds, and twelve were short-term debt funds. The performance measures used for the analysis were: mean returns, standard deviation in returns, beta, and Sharpe ratio. The portfolio allocation of the funds was described both in terms of the percentage allocated in equity, debt, and cash & equivalents, and in terms of the percentage allocated in different sectors. The data was entirely secondary data, and was collected from the AMFI website. The findings of the study indicate that, for different types of funds, allocation in different asset classes, that is, equity, debt, and cash & equivalents, as well as their sector-wise allocation tend to impact the performance of the fund.

Swing Pricing: Theory and Evidence

Open-end mutual funds offer investors same-day liquidity while holding assets that in some cases take several days to sell. This liquidity transformation creates a potentially destabilizing first-mover advantage: When asset prices fall, investors who exit a fund earlier may pass the liquidation costs generated by their share redemptions to investors who remain in the fund. This incentive becomes particularly acute in periods of market stress, and it can amplify fire-sale spillover losses to other market participants. Swing pricing is a liquidity management tool that targets this first-mover advantage. It allows a fund to adjust or “swing” its net asset value in response to large flows out of or into a mutual fund. This article discusses the industry and regulatory context for swing pricing, and it reviews theory and empirical evidence on the design and effectiveness of swing pricing. The article concludes with directions for further research.

Performance Evaluation of Selected Open-Ended Mutual Fund Schemes in India

Abstract: Mutual funds are considered as the best investment option because they offer a higher return with little risk. The study’s main aim is to evaluate the performance of selected large and small cap equity mutual fund schemes. The performance has been analysed in terms of return and risk using risk-adjusted performance measures. The present study is descriptive and secondary data has been collected from the website of BSE, NSE and Mutual funds. The analysis shows that “HDFC Top 100 Fund - Growth Option - Direct Plan” is top large cap mutual funds scheme and “Tata Small Cap Fund-Direct Plan-Growth” is top small cap mutual funds scheme among the selected funds as per Sharpe, Treynor and Jenson ratio.

Financial Fragility in Open-Ended Mutual Funds: The Role of Liquidity Management Tools

Financial Fragility in Open-Ended Mutual Funds: The Role of Liquidity Management Tools

Performance Evaluation of Mutual Funds in Pakistan

In Pakistan Mutual Funds were introduced in 1962, when the public offering of National Investment (Unit) Trust (NIT) was introduced which is an open-end mutual fund. In 1966 another fund that is Investment Corporation of Pakistan (ICP) was establishment. ICP subsequently offered a series of closed-end mutual funds. Up to early 1990s, twenty six (26) closed-end ICP mutual funds had been floated by Investment Corporation of Pakistan. After considering the option of restructuring the corporation, government decided to wind up ICP in June, 2000. In 2002, the Government started Privatisation of the Investment Corporation of Pakistan. 25 Out of 26 closed-end funds of ICP were split into two lots. There had been a competitive bidding for the privatisation of funds. Management Right of Lot-A comprising 12 funds was acquired by ABAMCO Limited. Out of these 12, the first 9 funds were merged into a single closed-end fund and that was named as ABAMCO Capital Fund, except 4th ICP mutual fund as the certificate holders of the 4th ICP fund had not approved the scheme of arrangement of Amalgamation into ABAMCO capital fund in their extra ordinary general meeting held on December 20, 2003. The fund has therefore been reorganised as a separate closedend trust and named as ABAMCO Growth Fund. Rest of the three funds were merged into another single and named as ABAMCO Stock Market Fund. So far as the Lot-B is concerned, it comprised of 13 ICP funds, for all of these thirteen funds, the Management Right was acquired by PICIC Asset Management Company Limited. All of these thirteen funds were merged into a single closed-end fund which was named as “PICIC Investment Fund”. Later on the 26th fund of ICP (ICP-SEMF) was also acquired by PICIC Asset Management Company Limited.

Selectivity and Market-Timing Performance of Mutual Funds Using Human-Capital Augmented Various Asset-Pricing Models: Evidence from Pakistan

This study demonstrates the selectivity skills and market-timing ability performance of funds mangers through various sophisticated augmented asset pricing models. The results indicate better performance for selectivity and market-timing ability of fund managers but unexpectedly after adjusting size and value factors into the specifications, both demonstrate insignificant findings. It also investigates the nexus between various risk-adjusted factors including market, size, value, momentum and human-capital sixth-factor, with the excess portfolio mutual funds returns using sample of 120 open-ended mutual funds monthly data for the time span of 16 years 2005-2020. The simple and multivariate time-series OLS regression approaches are employed to investigate the nexus between various factors and mutual funds returns. The findings of the study evidenced statistically significant nexus of market, size and value factors with mutual funds returns while insignificant results for human-capital and momentum factors. Moreover, based on GRS test, the average absolute alpha of Income-Growth augmented CAPM is closer to zero therefore, assumed to be the best model among the risk-adjusted completing asset pricing models in mutual funds.

Study of the Skills of Balanced Fund Managers in Poland

The market timing is one of the active methods used by portfolio managers to do their investments more effective. It allows to separate management skills on a micro and macro scale. The market timing applies to the appropriate selection of assets for the portfolio and the right moment to change its structure. The aim of the presented research was to check whether the managers of balanced open-end mutual funds operating on the Polish market apply market timing skills. Nine balanced funds have been accepted for the research, which have existed since at least 2003 year. The research period covered the years 2003-2019. WIBOR 1M was used as the risk-free rate, and the market factors were the main WSE indexes. The research was first conducted based on basic market timing research models, i.e. the Henriksson-Merton and Treynor-Mazuy. Then, these models were expanded to include factors related to the bond market. The Henriksson-Merton and Treynor-Mazuy models and their extensions with additional factors were compared among themselves. Studies show that models with additional factors have proven to be more appropriate for balanced open-end mutual funds. It has occurred that regardless of the model used, market timing skills were similar. In most cases the fund managers did not achieve higher results than the results of the relevant benchmark. Managers tried to follow the trend rather than anticipate it. In most cases, there was also no ability to select assets or market-timing. Most of the parameters standing by these variables were not statistically significant.

A Study on Performance Evaluation of Gold Exchange Traded Funds in India: Pre & Post Covid Scenario

For centuries, Indians have had a strong affinity for gold. However, it was only in the year 2007 when India launched its first gold ETF (Gold BeES). The underlying asset of these ETFs is gold. Also, gold ETFs give you exposure to the Indian gold market. Gold Exchange Traded Funds, or Gold ETFs, are open-ended mutual fund schemes based on the ever-fluctuating cost of gold. Physical gold, on the other hand, does not generate an income. Also, the making charges on physical gold are high. Gold ETFs give investors exposure to the gold market. They are an excellent choice of investment for investors looking to beat inflation in the long run.

Financial Fragility in Open-ended Mutual Funds: The Role of Liquidity Management Tools

Financial Fragility in Open-ended Mutual Funds: The Role of Liquidity Management Tools