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Times-series regressions of funds' excess returns on three-factor model
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This paper examines the risk factors of the Saudi Arabian equity market using an extensive data set. The study demonstrates which risk factors explain mutual fund returns in the largest mutual fund market in the Middle East, a fast-growing economy and a major player in the oil market. This paper also assesses the global and emerging market risk fac...
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Context 1
... paper uses a timeseries regression approach following Fama and French (1993) for equity funds. Table 3 presents the time-series regression results for the four risk factors on equity funds' excess returns in Saudi Arabia (eq.8). The first model is based upon the market proxy (TASI) following the seminal work of Jensen (1968), which applies the single-factor model to evaluate portfolios' abnormal returns. ...Context 2
... regression results reveal that market proxy captures about 88% of the variation of funds' excess returns by itself. In specifications 2 and 3 of Table 3, we include the size effect (ME) and value effect (BE/ME) as proposed by Fama and French (1993) to enhance the explanatory ratio on the mutual fund returns to generate an accurate estimation of abnormal returns. Surprisingly, the three-factor model does not better explain the variation of the fund returns than the single-factor model because the R-squared does not increase significantly when we add the Fama and French factors. ...Context 3
... paper uses a timeseries regression approach following Fama and French (1993) for equity funds. Table 3 presents the time-series regression results for the four risk factors on equity funds' excess returns in Saudi Arabia (eq.8). The first model is based upon the market proxy (TASI) following the seminal work of Jensen (1968), which applies the single-factor model to evaluate portfolios' abnormal returns. ...Context 4
... regression results reveal that market proxy captures about 88% of the variation of funds' excess returns by itself. In specifications 2 and 3 of Table 3, we include the size effect (ME) and value effect (BE/ME) as proposed by Fama and French (1993) to enhance the explanatory ratio on the mutual fund returns to generate an accurate estimation of abnormal returns. Surprisingly, the three-factor model does not better explain the variation of the fund returns than the single-factor model because the R-squared does not increase significantly when we add the Fama and French factors. ...Similar publications
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Citations
This study aims to measure the performance of actively-managed Saudi Arabia mutual funds during the COVID-19 outbreak and examines the potential impact of COVID-19 growth on the measured performance. The authors apply the Fama and French five-factor model to measure the risk-adjusted performance of a selected sample of 79 mutual funds. Mutual funds in Saudi Arabia outperformed the market with a significant positive alpha of 0.15%. The panel data regression technique identified the impact of growth in new confirmed cases and fatalities with fund-specific variables on mutual fund performance. The findings suggest that new confirmed cases had a significant and negative impact on mutual fund unadjusted returns and risk-adjusted returns. The significant positive impact of growth in COVID-19 fatalities on fund performance may have been interpreted as positive news by the market participants as the actual mortality rate was lower than previous forecast. Moreover, the study found that even individually, most mutual fund managers were not able to minimise the impact of the COVID-19 outbreak on mutual fund returns compared to the market portfolio. This study examines the potential impact of growth in COVID-19 cases as a new factor affecting mutual fund performance which helps investors to understand the behaviour of mutual fund performance during the COVID-19 crisis. It also provides evidence on how mutual fund performance reacted to the COVID-19 outbreak when compared to the overall market performance reaction. Moreover, this is the first study that applied the Fama and French five-factor model to estimate the mutual funds’ risk-adjusted performance.
