PREDICTING PAKISTANS’ MUTUAL FUND PERFORMANCE: AN EVALUATION OF TRADITIONAL AND MODERN MEASURES
DOI:
https://doi.org/10.55197/qjssh.v4i5.302Keywords:
mutual fund, risk-adjusted performance, CAPM, fama french-3 factor, carhart-4 factor, grsAbstract
Mutual Funds enable small investors to benefit from the capital market with minimal investments, thanks to the expertise of professional managers. This study focuses on the Pakistani Mutual Fund industry and evaluates the suitability of traditional and multifactor asset pricing models in assessing Mutual Fund performance. Since multifactor models are rarely used in Pakistani research, this study employs the CAPM, Fama French, and Carhart models to assess the performance of Pakistan Mutual Funds. Data from 100 open-end Mutual Funds between 2005 and 2017 was collected from the Mutual Fund Association of Pakistan, while risk-free rates data was gathered from the State Bank of Pakistan and stock data from the Pakistan Stock Exchange. Ratio analysis, CAPM, Fama French-3 Factor, and Carhart-4 Factor models were used to analyze the data and determine which model was most suitable. The results indicate that the CAPM affects the market factors of the majority of portfolios. Conversely, the size factor, value factor, and momentum factor in the Fama French and Carhart models have an insignificant effect on the majority of portfolios. The Gibbon Rose Shanken test reveals that the CAPM model is the most suitable for evaluating Mutual Fund performance in Pakistan. The findings of this study have implications for asset management company managers and investors alike. It provides valuable insights into which funds perform better and which types of funds are ideal for investment.
References
Aggarwal, R. (2017): The Fama-French three factor model and the capital asset pricing model: Evidence from the Indian stock market. – Indian Journal of Research in Capital Markets 4(2): 36-47.
Ansari, H., Shah, F.M. (2016): The effect of fund size on equity mutual fund performance in Pakistan. – International Journal of Innovation and Scientific Research 20(1): 1-18.
Arif, M., Samim, M.M., Khurshid, M.K., Ali, A. (2019): Islamic versus conventional mutual funds performance in Pakistan; Comparative analysis through performance measures and DEA approach. – European Online Journal of Natural and Social Sciences 8(1): 76-94.
Chizema, A., Jiang, W., Kuo, J.M., Song, X. (2020): Mutual funds, tunneling and firm performance: evidence from China. – Review of Quantitative Finance and Accounting 55: 355-387.
Climent, F., Mollá, P., Soriano, P. (2020): The investment performance of US Islamic mutual funds. – Sustainability 12(9): 18p.
Dupuy, C., Lavigne, S., Chenaf-Nicet, D. (2016): Where Do “Impatient” Mutual Funds Invest? A Special Attraction for Large Proximate Markets and Companies with Strategic Investors. – Journal of Mathematical Finance 6(04): 502-523.
Jan, S., Siddiqi, M.F., Ullah, K. (2019): Maqasid al Shariah and stakeholders’ wellbeing in Islamic banks: A proposed framework. – Business & Economic Review 11(1): 83-102.
Jensen, M.C. (1968): The performance of mutual funds in the period 1945-1964. – The Journal of Finance 23(2): 389-416.
Nicolescu, L., Tudorache, F.G., Androniceanu, A. (2020): Performance risk analysis on mutual funds versus stock exchanges in young financial markets. – Journal of International Studies 13(1): 279-294.
Sehrawat, N., Kumar, A., Nigam, N.K., Singh, K., Goyal, K. (2020): Test of capital market integration using Fama-French three-factor model: Empirical evidence from India. – Investment Management & Financial Innovations 17(2): 113-127.
Sha, Y., Gao, R. (2019): Which is the best: A comparison of asset pricing factor models in Chinese mutual fund industry. – Economic Modelling 83: 8-16.
Simons, K., Stavins, J. (1998): Has antitrust policy in banking become obsolete? – New England Economic Review 13p.
Tripathy, N. (2017): Efficiency of mutual funds and performance measurement in India: an empirical investigation. – International Journal of Business Excellence 13(2): 217-237.