Mutual Fund Risk Research Articles

Tail risk and excess return of mutual funds: loss-premium balance hypothesis

ABSTRACT This paper studies the relationship between tail risk exposure and mutual fund returns using samples from January 2007 to December 2022. The T R jl calculated by Generalized Extreme Value Distribution captures the negative correlation between returns and tail risk, with a one-standard-deviation increase (0.0119) leading to 0.24% decrease in three-factor alpha quarterly. T R jl also captures the nonlinear effect in short term, yet the nonlinearity diminishes due to the reversal of the return-risk exposure curve of equity funds in long term. We propose Loss-Premium Balance Hypothesis, positing that risk loss and premium effect are dominant under different tail risk exposures, respectively.

Effect of Macroeconomic Factors on Mutual Funds Risk and Return: An Empirical Study from Bangladesh

This study aims to identify the influence of macroeconomic factors on the risk and return of mutual funds in Bangladesh. Monthly closing price data of 27 mutual funds from Bangladesh are collected from December 2015 to December 2022. Additionally, monthly data of 6 macroeconomic variables, i.e., deposit rate, export, import payments, remittance, broad money (M2) and GDP growth rate, are gathered for this study. This study utilized standard deviation and beta as risk measures, and the Sharpe and Treynor ratios are applied as risk-adjusted return (RAR) measures. All the risk and risk-adjusted return measures are computed using 12-months rolling window method. The random effect model of panel data analysis is applied to find the influence of macroeconomic variables on the risk and return of mutual funds. Overall findings indicate that macroeconomic factors significantly influence mutual fund risk exposure. On the other hand, risk-adjusted return (RAR) is also significantly influenced by the macroeconomic variables. This empirical evidence helps practitioners and institutional investors in their decision-making in the situation of market asymmetric. Keywords: Risk-Adjusted Return, Bangladesh, Mutual Fund, Standard Deviation, Beta, Sharpe Ratio, Treynor Ratio

Does Islamic Mutual Fund Bear Higher Risk than Conventional Mutual Funds? An Empirical Analysis from Bangladesh

This study aims to identify whether Islamic mutual funds bear higher risk exposure than conventional mutual funds due to implementing their shariah screening criteria to select assets on the portfolio. For this purpose, monthly closing price data of Islamic and conventional funds operated in Bangladesh are collected from January 2016 to August 2023. A total of 2320 observations of each risk measure (e.g., standard deviation, semi-standard deviation, semi-standard deviation, and beta) are computed using a 12-month rolling window method to compare risk exposure between Islamic and conventional funds using univariable and multivariate analysis. The univariate analysis is conducted by performing an independent samples t-test, which confirms that overall, Islamic funds bear lower risk exposure than conventional funds. In multivariate analysis, the Feasible Generalized Least Square (FGLS) method, a dynamic panel data analysis model, is applied where the effects of macroeconomic variables such as deposit rate, GDP growth rate, exports, imports, broad money, and remittances are controlled. The results of the multivariate analysis also confirm that Islamic mutual fund risk exposure is lower than that of conventional mutual funds. This study will be helpful for practitioners and institutional investors in decision-making.

The time-varying effects of geopolitical risk on mutual fund risk taking.

Based on a time-varying parameter vector autoregression model with stochastic volatility (TVP-VAR-SV), this paper investigates the dynamic effects of geopolitical risk on mutual fund risk taking in China across three-time horizons and at three selected time points. Overall, the impulse responses are time-varying and we find a negative effect of geopolitical risk on mutual fund risk taking until 2015, with the short-term effect being the most pronounced, suggesting that when professional investors such as mutual fund managers are faced with the stock valuation uncertainty due to a geopolitical shock, they choose to reduce market risk exposures. After 2015, the short-term effect begins to diminish and gradually turns positive, which could be explained by the fact that with the increasing abundance and diversification of investment instruments, fund managers have more effective investment tools and more sophisticated trading strategies to hedge against geopolitical risk, rather than reducing market risk exposure. Further, we explore the heterogeneous effects of eight types of geopolitical risk and three types of mutual fund. The results indicate that the effect of geopolitical actions is stronger than that of geopolitical threats, while the effect of narrow geopolitical risk is stronger than that of broad geopolitical risk. Moreover, we find that the response of the risk taking of growth funds to the geopolitical risk is weaker than that of balanced and income funds.

Impact of Fund Size on Performance and Risk of Closed-End Mutual Funds: An Empirical Analysis in the Context of Bangladesh

Impact of Fund Size on Performance and Risk of Closed-End Mutual Funds: An Empirical Analysis in the Context of Bangladesh

Exploring the Co-movement Between Return and Risk of Mutual Funds

The goal of this study is to review the significance of the mutual fund market’s return and volatility and which type of mutual fund has a vital impact which contributes to the understanding of the investor's indicates their investment decisions and identify the past related studies upon the performance of the mutual fund towards aligning to the latest short and long-term strategies for the responsible authority to reorient their policies to ensure the terms of exposure of current managerial actions is heading upon the evolution of innovation. The author has analysed and evaluated a broad range of literature on mutual funds, examining a range of factors and features that contribute to their short and long-term viability and diversification. As a result of their thorough review, the study has identified diverse types of mutual funds indicating that it plays a vital role in the survival and success of these investment vehicles. Furthermore, the current studies delving into a wide range of recognition of the Unit Trust Funds roles for the responsible institutions at domestic and international organisations directed towards establishing a better ailing with better-shaped strategies which are been explored. Yet, the past research has been a gap being explicated due to lack of innovation and this study would like to address the gap and is proposed along with the list of resources for future research with a similar aim. The originality of this study is to ensure that the validity of the research has been well assured by reference to highly indexed articles from various platforms such as Scopus, Web of Science etc. Thus, the purpose of the study is supported with solid justification.

Impact of Fund Size on Performance and Risk of Closed-End Mutual Funds: An Empirical Analysis in the Context of Bangladesh

Impact of Fund Size on Performance and Risk of Closed-End Mutual Funds: An Empirical Analysis in the Context of Bangladesh

Comparison Of The Performance Of Sharia Stock Mutual Funds With The Performance Of Conventional Stock Mutual Funds

This study aims to determine the differences in the performance of Islamic stock mutual funds with the performance of conventional stock mutual funds. This type of research is a descriptive statistical analysis with a sample population of Islamic stock mutual funds and conventional stock mutual funds that are actively listed on the IDX for the 2016-2020 period. The sample selection used the purpose sumpling technique. Purpose sampling method is a sampling method based on certain criteria. The method used is the Independent Sample T Test different test. The mutual funds tested were the performance of sayriah stock mutual funds and the performance of conventional stock mutual funds based on the value of return and risk of mutual funds using the Sharpe, Treynor, Jensen and MM methods. The results of this study indicate that there is a significant difference between the performance of Islamic stock mutual funds and the performance of conventional stock mutual funds.

Can mutual fund investors benefit from volatility managing? Evidence from China

Using a comprehensive sample of Chinese mutual funds from 2004 to 2021, we find strong evidence that managing the intertemporal total (downside) risk of actively managed equity mutual funds significantly improves the performance in terms of alphas, Sharpe ratios, and Sortino ratios. Each volatility-managed strategy studied in this paper can survive transaction costs. By testing the relation between risk and return of mutual funds, we find the gains from managing the total (downside) volatility are attributed to both volatility timing and return timing. Empirical results are robust to alternative measurements of total (downside) volatilities, leverage constraints, rebalancing frequency, factor models, sample filters, and a portfolio of all mutual funds. There is no obvious relationship between fund flows and past fund total volatility in the Chinese fund market. However, after dividing the total volatility into upside and downside volatility, the fund flows are positively (negatively) related to the upside (downside) volatility, and these relations are more pronounced for institution-dominated funds.

Assessing the Return and Risk Equity Mutual Funds: A Case Study from the Financial Markets of Pakistan

Purpose: A mutual fund is a type of trust that combines the assets of a group of persons with similar financial objectives. The funds are subsequently put into assets like stocks, bonds, and other capital market instruments. This study aims to identify the association level among the performance measures, calculate the risk and return of selected mutual schemes, evaluate funds based on execution, and recommend mutual fund investment system that help eliminate the risks.
 Design/Methodology/Approach: The average return of mutual fund schemes was studied for a data period from 2015 to 2022. The study employed Jensen Ratio, Sharp Ratio, and Treynor Ratio to determine the risk and return of mutual funds.
 Findings: The beta shows that the market has particularly defensive investors. The Sharpe ratio for the mutual fund indicates that the industry’s performance is satisfactory but not up to the mark due to multiple political and economic reasons. Similarly, The Jensen differential measure yields remained negative in some periods with different funds. Overall findings thus imply that mutual funds in Pakistan have the potential to generate value. While findings also reveal that some funds perform poorly, the diversification issue is problematic for these funds. This industry has the potential for remarkable expansion on a global scale.
 Implications/Originality/Value: The performance of the funds business and the function of regulatory authorities are critical factors in this sector's success. Excellent results and strict restrictions will boost the popularity of mutual funds in Pakistan.

Be nice to the air: Severe haze pollution and mutual fund risk

Motivated by the significant impacts of environmental risks on economic decisions and the increasing roles of mutual funds in financial markets in recent decades, this study examines the impact of ambient pollution on mutual funds' risk outcomes. Our fund fixed-effect regression estimates use manually collected propriety data from several datasets, showing that polluted air increases tracking errors and mutual fund return volatility. Adopting different identification strategies, including instrumental variable estimations and difference-in-difference analyses based on two natural experiments, suggests that the impact of air pollution on mutual funds' risk is causal. Our findings suggest that air pollution harms fund managers' cognitive abilities and impairs their investment efficiency, thereby increasing mutual funds' tracking errors and return volatility. Overall, our findings provide insights into the impact of climate change on social behavior by shedding new light on the impact of air quality on asset managers' behavior.

PERFORMANCE EVALUATION OF SIP (SYSTEMATIC INVESTMENT PLAN) IN MUTUAL FUNDS: A COMPARATIVE ANALYSIS

The Performance Evaluation of Systematic Investment Plans (SIPs) in Mutual Funds is a crucial way of investment avenue analysis, it aids potential investors in making informed decisions. The present study aims to present a comprehensive comparative analysis of SIPs in selected set of top 30 mutual funds in India through SIPs. The research methodology employed in present study is purposive sampling method of mutual fund schemes based on their SIP returns. The evaluation was implemented using the BSE Sensex for benchmark and 91-day Treasury bills for the risk-free rate. Various tools and techniques such as average return, alpha, beta, Sharpe ratio, Treynor ratio, Sortino ratio, standard deviation, downside capture, and upside capture were employed to analyse the risk and performance of mutual funds through SIPs. The study found fluctuations in the performance of selected mutual fund categories. This comparative analysis of mutual fund performance through SIP contributes to assisting investors in making well-informed investment decisions by means evaluating the performance and risk associated with selected mutual fund schemes.

ANALISIS EKSPOSUR RISIKO REKSADANA SYARIAH DAN REKSADANA KONVENSIONAL DI INDONESIA DENGAN PENDEKATAN CAPM, MARKET TIMING ABILITY DAN DOWNSIDE RISK

This study was conducted to determine the risks of conventional mutual funds and sharia types of stocks in Indonesia during the period 2017-2021. Through this research, the public as potential investors, general investors, and investment managers will get information about the risk of mutual fund by comparing the results of risk, measurements of each mutual fund, considering the increasing number of mutual fund investment instruments of either type or number. The measurement methods used are capm beta value, beta market timing ability and beta downside (downside risk). The results showed that using these three measurements, the total risk exposure of Islamic mutual funds was lower than that of conventional mutual funds.

COMPARISON ANALYSIS OF INDEX IDX30 OPTIMAL SHARE PORTFOLIO WITH INDONESIAN EQUITY FUND PORTFOLIO PERFORMANCE

Based on the results of the study, the conclusions that can be drawn are as follows. The optimal portfolio calculation results on the Single Index Model method for stocks show that stocks with UNVR issuers are the only ones that are optimal. Whereas in Mutual Funds there is no optimal portfolio calculation results. The results of calculations using the Markowitz method for all stock issuers obtained a return value of 0.000634 with a risk of 0.036057, namely at alpha 0.9. Meanwhile, for all stock mutual fund issuers, a return value of 0.003195 was obtained with a risk of 0.033629, namely at alpha 0.9. Compared to calculations using the Single Index Model Method for all stocks, a return value of 0.0050 is obtained with a risk of 0.0218, while for Equity Mutual Fund issuers a return value of 0.0072 is obtained with a risk of 0.0194, in this case the calculation of the optimal portfolio in stocks and mutual funds using the Markowitz Method produces a smaller return and greater risk than the Single Index Model method. The Single Index Model method which produces stock return calculations is superior to the Markowitz method. This is obtained from the results of the return value obtained on the Single Index Model which is greater than the Markowitz model so that stock investment will be more profitable if using the Single Index Model method. The Single Index Model method is superior to the Markowitz method in calculating mutual fund returns. This is obtained from the results of the return value obtained in the Single Index Model which is greater than the Markowitz model so that mutual fund investment will be more profitable if using the Single Index Model method. The Single Index Model method is superior to the Markowitz method in calculating stock risk. This is obtained from the results of the stock risk value obtained in the Single Index Model which is smaller than the Markowitz model so that stock investment will be riskier if using the Markowitz method. The Single Index Model method is superior to the Markowitz method in calculating mutual fund risk. This is obtained from the results of the mutual fund risk values obtained in the Single Index Model which are smaller than the Markowitz model so that mutual fund investments will be riskier if using the Markowitz method.

Comparing the Performance of Private and Public Sector Mutual Funds: An Analysis of Factors Influencing Returns

Increasing interest towards mutual funds has significantly attracted attentions of the researchers, investors in mutual fund scheme. Similarly, investment opportunities and interest towards mutual funds have also increased in Pakistan. Therefore, the aim of the research was to empirically analyse and understand the changes in performance of private and public sector of Pakistan Mutual fund. For conducting this research, researcher has relied on secondary quantitative information, and data has been derived from MUFAP on 1 private company (i.e. Al Meezan Investment Management Limited) and 1 public company (i.e. ABL Cash Fund). For data analysis, statistical tools including correlation, and T-test were used through using SPSS software. Findings show that there is a significance difference in performance of both private and public sector. As NAV and return in private sector is found to be statistically different from public sector. Additionally, risk in mutual fund of private sector is also found to be statistically different from public sector. Further, findings in the current research have also shows a negative association between return and risk of both private and public mutual funds. Findings in the current research can be used to fill a gap in previous studies. Further, findings in the current research can also be used in future studies through increasing sample size, and other factors. Moreover, it can also be used for cross countries, companies, and region.

Islamic & Conventional Mutual Funds Performance by Return and Risk Adjusted Performance

This study compares the performance of Islamic and conventional mutual funds from 2017 to 2021 with the aim of analyzing the differences. This study makes use of secondary data from the Otoritas Jasa Keuangan (OJK) for 5 years that were downloaded from the OJK's official website (OJK). Purposive sampling is used in this study sampling method. The Mann-Whitney U Test is the analysis technique employed. According to the study's findings, there are no appreciable differences between mutual fund risk and market risk for Islamic mutual funds in terms of beta, return, and Sharpe. While there are variances between the Treynor, Jensen Alpha, M2 Measurement, and Appraisal Ratio techniques.

Comparison of investment in stocks, gold, and mutual funds before and during the crisis due to the Covid-19 pandemic in Indonesia

Wuhan, China was the epicenter of the virus epidemic known as COVID-19. The developing COVID-19 issue affects the finances of numerous nations, including Indonesia. The government is taking precautions against the spread of COVID-19 by encouraging people to stay home, decrease their movement, avoid crowded places, and add PSBB in 2020 and PPKM in 2021. This study compared the return and risk of stocks, gold, and mutual funds before and after the COVID-19 pandemic, which happened as a result of a crisis occurrence. The data used spans from January 2015 through December 2022 and includes the LQ45 Index's ending price as retrieved from idx.co.id, Antam's gold price as seen on Logammulia.com, and the primary NAV/unit of Manulife mutual funds as seen on Bareksa's official website, Bareksa.com. By using the One-Way ANOVA test followed by the Tukey HSD follow-up test, the result was that before the Covid-19 pandemic there were differences in returns and risks between investment in stocks, gold and mutual funds where before Covid-19 stocks were investments that had the highest returns and risks. Then, It was found that during the pandemic there were differences in returns and risks between stock, gold, and mutual fund investments, with mutual fund investments having the highest return and risk. his research is limited by the fact that only stocks, gold, and mutual funds were examined, with equity mutual fund statistics from Manulife Saham Andalan used for mutual funds. This study focuses on the time of the crisis brought on by the COVID-19 pandemic, but it is anticipated that future studies will be able to incorporate additional investment tools.

Cultural Diversity among Money Managers and Mutual Fund Risk and Return

Cultural Diversity among Money Managers and Mutual Fund Risk and Return

Performance and risk of Brazilian equity mutual funds in the context of the covid-19 pandemic

The goal of this research was to analyze how Brazilian equity investment funds behaved during the Covid-19 period. The analysis was divided into 3 sub-periods: (i) pre-crisis (2019-10-03 to 2020-01-31); (ii) crash (2020-02-19 to 2020-03-23); (iii) and recovery (2020-03-24 to 2020-04-30. The main results showed that during the crash period, in all the categories, more than 50% of the funds obtained a return superior to that of the IBRX100. However, in the recovery period, the scenario is reversed and the vast majority of funds start to underperform the index. However, when performance is analyzed from the perspective of multifactor risk models, it is possible to identify positive alpha generation during the pre-crisis period and negative (destruction of value) during the crash period. In addition, when examining fund flows, it can be seen that there was no "run on the fund" phenomenon to redeem the shares. Actually, in the analyzed period, the inflows surpassed the redemptions. This may indicate that the fund investors are financially more educated and that he or she acted with more caution when waiting for a less turbulent moment. The article concludes that the industry was coming from an excellent performance in the pre-crisis period, which was interrupted by a period of value destruction during the moment of the greatest turmoil, and that, finally, during the recovery period, the performance was below the market index, but without generating or destructing significant value.

Economic policy uncertainty and mutual fund risk shifting

This study examines the effect of economic policy uncertainty (EPU) on mutual fund risk shifting. Using Chinese mutual fund data from 2006 to 2020, we find that managers increase risk-shifting activities when uncertainty rises. A one-standard-deviation increase in EPU is associated with a 0.27- to 0.55-standard-deviation increase in risk shifting. Managers’ tendency to shift risk stems from poor performance during high EPU periods. Managers increase the portfolio risk by switching from cash holdings to equities, engaging in sector rotation, and increasing bubble stock holdings.