Mutual Fund Management Case Study

6188 Words 25 Pages
Register to read the introduction… E. Fama (1970) developed a methodology for evaluating investment performance of managed portfolios. He suggested that the overall performance of managed portfolios could be broken down into several components. He argued that the observed return of a fund could be due to ability of fund managers to pick up the best securities at a given level of risk (their selectivity ability). Some portion of this return could also arise due to the prediction of general market price movements (their market timing ability). Fama suggested that return on a portfolio could be subdivided into two parts. The return for security selection and return for bearing risk. Various finer subdivisions of both selectivity and risk were also suggested. The model developed by him combined concepts from modern theories of portfolio selection and capital market equilibrium with those of traditional concepts of what constitute good portfolio management†. Henriksson and Merton (1981) provide a theoretical model and Henriksson (1984) provide an empirical test of the timing ability of fund managers. Motivated by the pioneering work of Henriksson and Merton (1981), Weigel (1991) found managers had reliable, although not perfect, market timing skills. Several investigations, as typified by Kon (1983) and Chang and lewellen (1984), concluded that mutual fund …show more content…
Most of the performance evaluation methods depend on an asset pricing model. These measures suffer from Roll (1978)‟s critique. Papers that provide measures that do not depend on an asset pricing model include Cornell (1979) and Grinblatt and Titman (1993). Besides Chang and Lewellen (1985), and Connor and Korajczyk (1986) use APT frame works to measure performance. These authors also get mixed findings regarding the performance of mutual fund. Previously numerous studies conducted regarding mutual funds around the world. Our literature review revealed that there is wide open area of research exists in mutual fund industry of Bangladesh. The lacking of research in this sector motivates us to conduct this fundamental study with the objectives given in the next part. 3. Objective: The present paper attempts to answer two questions relating to mutual fund performance; I. Whether the Mutual Fund are earning higher returns than the benchmark index returns in terms of risk. II. Whether the Fund Managers‟ are offering the advantages of Diversification, Market timing and Selectivity of Securities to their

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