An Appraisal of Modeling Dimensions for Performance Appraisal of Global Mutual Funds

Abstract

A number of studies have been conducted to examine investment performance of mutual funds of the developed capital markets. Grinblatt and Titman (J Bus 62:393–416, 1989, Am Econ Rev 85:1088–1105, 1994) found that small mutual funds perform better than large ones and that performance is negatively correlated to management fees, but not to fund size or expenses. Hendricks, Patel, and Zeckhauser (Hot hands in mutual funds: a short run persistence of relative performance. J Finance 48:93–130, 1993), Goetzman, Ibbotson, (Do winners repeat; predicting mutual fund performance. J Portfolio Mgmt 20:9–18, 1994), and Brown, Goetzmann(Performance persistence.J Finance, American Finance Association 50(2):679–698, 1995) present evidence of persistence in mutual fund performance.Grinblatt and Titman(The persistence of mutual fund performance. J Finance 47(5):1977–1984, 1992), and Elton et al. (J Fin Econ 42:397–421, 1996) show that past performance is a good predictor of future performance. Blakeet al.(The performance of bond mutual funds. J Bus 66:371–403, 1993), Detzler (The performance of global bond mutual funds. JBanking Fin 23:1195–1217, 1999), and Philpot et al.(Active management, fund size and bond mutual fund returns. Fin Rev 33:115–126, 1998) find that performance is negatively correlated to fund expense, and that past performance does not predict future performance. However, Philpotet al. (Performance persistence and management skill in nonconventional bond mutual funds. FinServ Rev 9:247–258, 2000) provide evidence of short-term performance persistence in high-yield bond mutual funds. In their studies of money market mutual funds, Domain and Rechenstein (Performance and persistence in money market mutual fund returns, Fin Serv Rev 6:169–183, 1998) find that the expense ratio is the most important factor in explaining net return differences. Christoffersen (Why do Money fund managers voluntarily waive their fee? J Fin 74:117–140, 2001) shows that fee waivers matter to performance. Smith and Tito (J Fin Quant Anal 4:449–471, 1969) conducted a study into 38 funds for 1958–67 and obtained similar results. Treyner (Harv Bus Rev 43:63–75, 1965) advocated the use of Beta Coefficient instead of the total risk.

Statistical Technique used: This chapter is intended examine the modeling dimensions of measuring performance of mutual funds during the last 50 years, which leads to innovative research in financial modeling of mutual fund’s performance measure with the help of various models like: regression model, Treynor Model, Lee Model etc.

• 1. To understand financial modeling techniques used for performance evaluation of global mutual funds during last 50 years.

• 2. To develop scope for new model in the area of performance appraisal of mutual funds