Performance and Risk Indicators of Two Mutual Fund Managers

953 WordsFeb 24, 20184 Pages
This study aims to conduct a comprehensive analysis on the performance and risk indicators of two mutual fund managers. After transforming the returns of the mutual funds into the same data-scale with the other variables, we employ a statistically rigorous factor analysis procedure to identify the risk-adjusted performance of each mutual fund. Then, we apply Chow(1960) tests to investigate possible investment strategy similarities and potential structural breakpoints. 2. Modelling and Analysis The first model used to evaluate risk-adjusted fund performance was based on the work by Sharpe-Lintner-Treynor- Mossin on the Capital Asset Pricing Model. Using OLS we estimate: Based on these results we could argue that the mutual funds do not follow the market closely, but both Managers over-perform the index. Furthermore, in order to test whether or not we have viable explanatory coefficients, a t-testing procedure was followed(Table 2). Using a 5% significance level, all coefficients except the market beta of Mutual Fund 1 are statistically significant. The low R2 in both mutual funds implies that their returns are less well explained by the Benchmark’s movements. However, Titman and Tiu(2011) suggest that low R-squares likely indicate more active management; either departing from a Benchmark or focusing on stocks with larger fractions of variance attributed to firm-specific information. In order to compare both Managers’ performance, Kothari and Warner(1998)
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