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Evaluating mutual fund performance in an emerging Asian economy: The Malaysian experience

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  • Lai, Ming-Ming
  • Lau, Siok-Hwa
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    Abstract

    This paper examines the performance of 311 mutual funds from January 1990 to December 2005 in Malaysia by using composite portfolio performance measures, the single market model, the Fama and French three-factor model, and the Carhart four-factor model across investment horizons. Overall, we have found evidence that mutual fund performances yield superior returns with relatively lower systematic risks. A 3-year investment appears to be the preferred investment horizon with the highest annualized returns of 9.23%. The results of the single market model, the Fama-French three-factor model, and the Carhart four-factor model have all indicated that beta, size, book-to-market value, and momentum factors are significant factors in explaining equity fund returns with the Carhart four-factor model being the relatively better model among the three. The beta factor has demonstrated the highest coefficient and significance. The results further indicate that the average equity funds in Malaysia hold smaller market capitalization stocks and value oriented stocks, as well as buying past-winning and selling past-losing stocks.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Asian Economics.

    Volume (Year): 21 (2010)
    Issue (Month): 4 (August)
    Pages: 378-390

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    Handle: RePEc:eee:asieco:v:21:y:2010:i:4:p:378-390

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    Web page: http://www.elsevier.com/locate/asieco

    Related research

    Keywords: Mutual funds Emerging market Malaysia Multifactor model Performance measures;

    References

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    1. Cumby, Robert E & Glen, Jack D, 1990. " Evaluating the Performance of International Mutual Funds," Journal of Finance, American Finance Association, vol. 45(2), pages 497-521, June.
    2. Fikriyah Abdullah & Taufiq Hassan & Shamsher Mohamad, 2007. "Investigation of performance of Malaysian Islamic unit trust funds: Comparison with conventional unit trust funds," Managerial Finance, Emerald Group Publishing, vol. 33(2), pages 142-153.
    3. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    4. Roger Otten & Dennis Bams, 2002. "European Mutual Fund Performance," European Financial Management, European Financial Management Association, vol. 8(1), pages 75-101.
    5. Fama, Eugene F., 1986. "Term premiums and default premiums in money markets," Journal of Financial Economics, Elsevier, vol. 17(1), pages 175-196, September.
    6. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    7. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, 05.
    8. Jonathan Fletcher & David N. Forbes, 2004. "Performance Evaluation Of U.K. Unit Trusts Within The Stochastic Discount Factor Framework," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 27(2), pages 289-306.
    9. S.P. Kothari, 2001. "Evaluating Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 56(5), pages 1985-2010, October.
    10. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    11. Rogér Otten & Dennis Bams, 2004. "How to measure mutual fund performance: economic versus statistical relevance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 44(2), pages 203-222.
    12. Martin J. Gruber, 2001. "Identifying the Risk Structure of Mutual Fund Returns," European Financial Management, European Financial Management Association, vol. 7(2), pages 147-159.
    13. Reuben A. Kessel, 1965. "The Cyclical Behavior of the Term Structure of Interest Rates," NBER Books, National Bureau of Economic Research, Inc, number kess65-1, octubre-d.
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    Cited by:
    1. Mehreen Mahmud & Nawazish Mirza, 2011. "An Evaluation of Mutual Fund Performance in an Emerging Economy: The Case of Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 301-316, September.
    2. Mamatzakis, E & Babalos, Vassilios & filipas, n, 2013. "Fund Performance Evaluation in Greece Revisited: Evidence from the Impact of Operational Attributes," MPRA Paper 51640, University Library of Munich, Germany.

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