Persistence of Large-Cap Equity Funds performance, market timing ability, and selectivity: evidence from India

PurposeThis paper evaluates the risk-adjusted returns, selectivity, market timing skills and persistence of the performance of Nigerian pension funds.Design/methodology/approachAnnual return data of 23 pension funds that operated in Nigeria between 2018 and 2022 were obtained from the National Pension Commission (PenCom). Risk-adjusted return was appraised using the Treynor ratio, Sharpe ratio and Jensen alpha, while the Treynor–Mazuy and Henriksson–Merton multiple regression models were applied to decompose selective and timing skills. Performance persistence was assessed using the contingency table and rank correlation models.FindingsEvidence shows that pension funds deliver excess risk-adjusted returns and exhibit selective skills. However, the evidence does not support the presence of timing skills, and there is overwhelming evidence that good (bad) performance does not repeat.Practical implicationsAn evaluation of the investment performance of pension funds is crucial for ensuring the financial stability of retirees, maintaining economic stability and making informed investment decisions. It serves the interests of pensioners, pension fund managers, regulators and the broader economy. Our evidence that pension funds generate positive excess returns is a departure from most of the literature on managed funds. We recommend that more Nigerians should leverage the pension fund industry to grow their wealth and prepare for retirement.Originality/valueThis study, to our knowledge, is the first to appraise all the key facets of the investment performance of pension funds in the Nigerian context.

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Selective and Market Timing Skills: An Empirical Evaluation of Equity Mutual Funds in an Emerging Market

D. A.

2024

African Journal of Accounting and Financial Research

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This study evaluates the selective and market timing skills of mutual funds managers using monthly net asset values of all 30 actively managed equity-based funds that operated from January 2012 to December 2021 obtained from the Securities and Exchange Commission. Selectivity is the ability to search for and choose undervalued securities to exploit the sub-optimal market weights of securities, while market timing is the ability to forecast the direction of the market and adjust portfolio betas to generate alpha. Two regression models, namely the Treynor-Mazuy (1966) and Henriksson-Merton (1981) were deployed for the study. The findings indicate that mutual funds did not exhibit significant selective skills or market timing abilities. This outcome is consistent with the Efficient Market Hypothesis (EMH). Consequently, it becomes challenging for investors or fund managers to consistently outperform the market through stock selection or market timing. Based on the study's results, the recommendation for investors is to consider low-cost passive investment strategies, such as index funds or exchange-traded funds (ETFs), over actively managed funds.

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Persistence of Large-Cap Equity Funds performance, market timing ability, and selectivity: evidence from India

Cited by 3 publications

References 45 publications

Performance Evaluation of Socially Responsible Funds Compared to Their Benchmark Index in India: Evidence from the Covid-19 Crisis

Performance Evaluation of Socially Responsible Funds Compared to Their Benchmark Index in India: Evidence from the Covid-19 Crisis

An empirical evaluation of the performance of Nigerian pension fund managers

Selective and Market Timing Skills: An Empirical Evaluation of Equity Mutual Funds in an Emerging Market

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