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All about fun(ds) in emerging markets? The case of equity mutual funds

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  • Wagner, Moritz
  • Margaritis, Dimitris

Abstract

Using an expanded sample of emerging market (EM) mutual fund returns, we find that funds predominantly investing in EM equities have, on average, higher reward-to-risk ratios compared to benchmark indices. However, adjusted for risk factors EM funds outperform before costs but not after costs. Only growth and Chinese funds generate returns that more than recoup their costs. Local funds have an edge over their foreign counterparts, outperforming them by approximately 1.8% annually. Foreign funds tend to invest more cautiously in small-cap and growth-stocks. We also show that most funds in EMs pursuing a market-timing strategy have rather poor market-timing skills negatively affecting risk-adjusted performance measures.

Suggested Citation

  • Wagner, Moritz & Margaritis, Dimitris, 2017. "All about fun(ds) in emerging markets? The case of equity mutual funds," Emerging Markets Review, Elsevier, vol. 33(C), pages 62-78.
    • Handle: RePEc:eee:ememar:v:33:y:2017:i:c:p:62-78
    DOI: 10.1016/j.ememar.2017.08.004
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    2. Alles Rodrigues, Alexandre & Casalin, Fabrizio, 2022. "Factor investing in Brazil: Diversifying across factor tilts and allocation strategies," Emerging Markets Review, Elsevier, vol. 52(C).
    3. Tao, Ran & Su, Chi-Wei & Xiao, Yidong & Dai, Ke & Khalid, Fahad, 2021. "Robo advisors, algorithmic trading and investment management: Wonders of fourth industrial revolution in financial markets," Technological Forecasting and Social Change, Elsevier, vol. 163(C).
    4. Katarzyna Perez & £ukasz Szymczyk, 2022. "Actual rate of the management fee in mutual funds of different styles," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(4), pages 969-1014, December.
    5. Hu, Shiyang & Xiang, Cheng & Quan, Xiaofeng, 2023. "Salience theory and mutual fund flows: Empirical evidence from China," Emerging Markets Review, Elsevier, vol. 54(C).
    6. Jonathan Batten & Xuan Vinh Vo, 2019. "Liquidity And Firm Value In An Emerging Market," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(02), pages 365-376, March.
    7. Božović, Miloš, 2022. "Recent evidence on the short-term and long-term performance persistence of emerging-market mutual fund returns," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    8. Cumming, Douglas & Johan, Sofia & Zhang, Yelin, 2019. "What is mutual fund flow?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 62(C), pages 222-251.

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    More about this item

    Keywords

    Mutual funds; Emerging markets; Fund performance; Market efficiency;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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