Effect of mutual funds characteristics on their performance and trading strategy: A dynamic panel approach

Figures & data

Table 1. Descriptive statistics of all variables

Year	Size (in INR ’10 Million)	Expense ratio (in %)	Portfolio turnover ratio (in %)	Cash ratio (in %)	Flow to funds (in INR ’10 Million)	Age (in years)	Gross return	Sharpe ratio	Cond. Carhart alpha
2004	324.062	2.280	-	-	1.385	8.881	0.088	0.039	0.031
2005	401.151	2.273	-	2.811	0.587	9.113	0.150	0.112	0.014
2006	652.569	2.190	$E{M}_{it}^{smb}$	3.879	0.681	10.203	0.127	0.063	0.015
2007	842.606	2.138	-	4.488	0.608	11.074	0.186	0.110	−0.007
2008	719.649	2.149	-	7.278	0.278	12.010	−0.344	−0.158	−0.029
2009	778.125	2.188	83.323	7.402	−0.267	12.523	0.250	0.127	0.031
2010	986.755	2.145	34.637	4.561	1.313	13.314	0.065	0.386	0.017
2011	651.700	2.174	23.973	4.890	0.177	13.845	−0.114	−0.131	0.003
2012	642.936	2.204	21.901	2.373	0.346	14.678	0.118	0.099	0.036
2013	832.264	2.574	24.643	0.873	1.839	15.494	−0.007	−0.038	0.011
Overall average	730.833	2.240	34.908	4.143	0.671	12.981	0.038	0.057	0.013
Minimum	0.281	1.000	0.030	−16.401	−1.161	2.000	−0.585	−0.246	−0.266
Maximum	10,971.900	5.655	402.000	38.679	113.982	22.000	0.492	1.257	0.120
Standard deviation	1085.213	0.393	64.589	4.925	4.773	4.532	0.166	0.221	0.039

Table 2. Results of statistical test for estimation method

	$\mathit{E}{M}_{it}^{smb}$	$\mathit{E}{M}_{it}^{hml}$	$\mathit{E}{M}_{it}^{mom}$
Breusch Pagan Multiplier test for random effect
Chi-square test statistics^$	0.000	0.000	0.000
p-Value	1.000	1.000	1.000
Hausman test
Chi-square test statistics^#	8.040	42.870	105.11
p-Value	0.154	0.000	0.000
Breusch-Pagan test for Heteroskedasticity
Chi-square test statistics^^	162.63	5.9*10^31	4.3*10^34
p-Value	0.000	0.000	0.000
Method applied	Robust Pooled-OLS	Robust Fixed Effect	Robust Fixed Effect

^$The failure to reject the null hypothesis implies random effect is not appropriate

^#Rejection of null hypothesis implies fixed effect is appropriate

^{^}Rejection of null hypothesis implies presence of heteroskedasticity.

Table 3. Effect of fund characteristics on performance of mutual funds

	Gross average return		Sharpe ratio		Conditional Carhart alpha
	I (2004–2013)	II (2009–2013)	I (2004–2013)	II (2009–2013)	I (2004–2013)	II (2009–2013)
Dependent variable at Lag one (L1.PERF)^^	−0.712*	−0.277*	−0.118*	−0.025	0.272*	0.168*
	(−24.385)	(−4.471)	(−2.566)	(−0.924)	(6.978)	(2.752)
Size of fund (LNAUM)	−0.063*	−0.008	−0.046	−0.109*	−0.010	−0.003
	(−8.258)	(−0.624)	(−1.503)	(−2.596)	(−1.618)	(−0.428)
Expense ratio (ER)	0.107*	−0.019	0.411*	0.585*	−0.003	−0.007
	(4.700)	(−0.447)	(4.810)	(3.087)	(−0.121)	(−0.256)
Cash ratio (CR)	−0.004*	−0.004	0.016	0.008	0.001	0.004*
	(−2.218)	(−1.337)	(1.651)	(0.509)	(0.512)	(2.010)
Flow to funds (FLOW)	0.006*	0.004*	0.006	0.004	0.001	0.002
	(6.555)	(2.489)	(1.773)	(0.941)	(1.261)	(1.799)
Age of fund (AGE)	0.058*	−0.010	0.040	0.014	0.009	0.040
	(3.318)	(−0.500)	(0.867)	(0.199)	(0.455)	(1.563)
Portfolio turnover ratio (LNPTR)		0.035*		0.011		0.005
		(4.284)		(0.536)		(1.338)
J-statistic^$	52.596	23.899	30.607	26.073	34.645	28.374
	(0.058)	(0.200)	(0.080)	(0.128)	(0.256)	(0.076)
AR(1)^$	−3.640*	−3.640*	−5.862*	−6.120*	−4.192*	−4.192*
	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)
AR(2)^$	0.976	0.976	−0.229	0.105	−0.635	−0.635
	(0.329)	(0.329)	(0.819)	(0.916)	(0.526)	(0.526)

^{^}The first row shows the coefficient and corresponding t-statistics in the second row.

^$The F-statistics is reported in the first row and p-value in the second row. The acceptance of null hypothesis for J-statistics implies that over-identifying restrictions are valid

*Significant at 5% level of significance

Table 4. Effect of fund characteristics on trading strategy of mutual funds

	$\mathit{E}{M}_{it}^{smb}$		$\mathit{E}{M}_{it}^{hml}$		$\mathit{E}{M}_{it}^{mom}$
	I (2004–2013)	II (2009–2013)	I (2004–2013)	II (2009–2013)	I (2004–2013)	II (2009–2013)
Size of fund (LNAUM^^)	−0.064*	−0.046	−0.046	0.104*	0.012	0.057*
	(−2.44)	(−1.76)	(−0.99)	(2.47)	(0.39)	(2.19)
Expense ratio (ER)	−0.264	−0.179	−0.614*	−0.504*	−0.224	0.003
	(−1.87)	(−1.49)	(−2.34)	(−4.34)	(−1.52)	(0.04)
Cash Ratio (CR)	−0.011	−0.001	−0.030*	−0.042*	−0.005	−0.017
	(−1.97)	(−0.20)	(−2.57)	(−3.71)	(−0.67)	(−1.55)
Flow to fund (FLOW)	0.006	0.005	0.007	0.003	0.001	−0.001
	(1.06)	(0.92)	(1.72)	(0.62)	(0.36)	(−0.20)
Age of fund (AGE)	0.016*	0.013	−0.072*	−0.187*	−0.119*	−0.126*
	(2.30)	(1.42)	(−3.73)	(−5.76)	(−7.75)	(−4.67)
Portfolio Turnover ratio (LNPTR)		−0.052*		−0.067*		−0.031
		(−2.82)		(−2.38)		(−1.15)
R-square	0.016	0.023	0.013	0.010	0.002	0.005
F-statistics^$	2.46*	3.34*	3.85*	15.64*	14.02*	5.79*
	(0.031)	(0.003)	(0.002)	(0.000)	(0.000)	(0.000)

^{^}The first row shows the coefficient and corresponding t-statistics in the second row.

^$The F-statistics is reported in the first row and p-value in the second row.

*Significant at 5% level of significance.

Table

	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013
No. of Funds in Database	52	66	91	133	164	181	196	193	184	269
No. of Funds in Sample	39	46	62	86	97	122	132	159	162	158
Proportion of Funds in Sample (per cent)	75.000	69.700	68.130	64.660	59.150	67.400	67.350	82.380	88.040	58.740