Cross-sectional determinants of managed fund risk and performance : evidence for Australian equity trusts

Kathryn A. Holmes, Robert W. Faff

Research output: Contribution to journalArticlepeer-review

Abstract

This paper investigates the potential determinants of risk, selectivity, market timing and volatility timing performance of a sample of Australian equity trusts, over the period 1988 to 1997. The approach involves a two-stage analysis. In the first stage we run sets of excess returns market model regressions; quadratic excess returns market model regressions; and cubic excess returns market model regressions. From the first stage regressions we extract various performance measures that are then used as dependent variables in second stage cross-sectional regressions. Here our goal is to assess the explanatory power of various fund characteristics (fund category; age; status; percentage cash; management expense ratio and size) in determining fund performance. Based on our sample, we identify three key findings. First, we find that fund category is an influential factor contributing to the fund performance measures of selectivity and market timing. Most notably, while diversified resources funds display negative selectivity ability, they also reveal positive timing ability. Second, fund status is also found to be an important explanatory variable. Specifically, we find that open funds tend to have higher risk, higher Jensen alphas and superior selectivity ability. The third major finding is that management expense ratio and lower percentage cash holdings are significant determining factors with regard to volatility timing.
Original languageEnglish
Pages (from-to)55-76
Number of pages22
JournalAccounting, Accountability and Performance
Volume6
Issue number1
Publication statusPublished - 2000

Keywords

  • equity
  • trust
  • Australia
  • management
  • characteristics
  • performance

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