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Testing Market Efficiency for Different Market Capitalization Funds

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  • Hossein Varamini
  • Svetlana Kalash
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    Abstract

    The main purpose of this study is to use the Sharpe Ratio to test the efficient market hypothesis for different market capitalization and investment styles of mutual funds. The results of the study for the entire period of 1994-2007 as well as the two sub-periods (1994-1999 and 2000-2007) indicate that small cap funds have provided the highest risk-adjusted return for the entire period whereas growth funds have exhibited lower returns. The findings, therefore, suggest that the mutual funds market is not always efficient, which makes it possible for an investor or a mutual fund manger to earn excess return on a risk-adjusted basis.

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    File URL: http://www.emeraldinsight.com/journals.htm?issn=1935-5181&volume=23&issue=2&articleid=1917880&show=abstract
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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal American Journal of Business.

    Volume (Year): 23 (2008)
    Issue (Month): 2 ()
    Pages: 17-26

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    Handle: RePEc:eme:ajbpps:v:23:y:2008:i:2:p:17-26

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    Related research

    Keywords: Market capitalization funds; Modigliani; Modigliani (M-squared) Measure; Mutual fund efficiency; Sharpe Ratio;

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    1. Flavin, Marjorie A, 1983. "Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 929-56, December.
    2. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    3. Kleidon, Allan W, 1986. "Variance Bounds Tests and Stock Price Valuation Models," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 953-1001, October.
    4. Lawrence S. Davidson & Richard T. Froyen, 1982. "Monetary policy and stock returns: are stock markets efficient?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 3-12.
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