Impact of COVID-19 on mutual fund performance in Saudi Arabia

Figures & data

Figure 1. Response of TASI returns to the growth of COVID-19 new confirmed cases from March 2020 to December 2020. The authors estimated and analysed the variants in this figure.

Table 1. Measurements of the risk factors in the Fama and French (2015) five-factor model

Variable	Definition	Measurements
Fund risk premium	Assets return over the risk-free rate	(RF,i,t-Rf,i,t)
Market risk premium	Market return over the risk-free rate	(Rm,i,t-Rf,i,t)
HML	Value-factor	$\left(Smallhigh+Bighigh\right)/2-\left(Smalllow+Biglow\right)/2$
RMW	Profitability-factor	$\left(Smallrobust+Bigrobust\right)/2-\left(Smallweak+Bigweak\right)/2$
CMA	Investment-factor	$\left(Smallconservative+Bigconservative\right)/2-\left(Smallaggressive+Bigaggressive\right)/2$
SMB	Size-factor	$SMB=\left(SM{B}_{value}+SM{B}_{profitability}+SM{B}_{Investment}\right)/3$
SMB-value	Size, value	$\left(Smalllow+SamllMedium+Smallhigh\right)/3-\left(Biglow+Bigmedium+Bighigh\right)/3$
SMB-profitability	Size, profitability	$\left(Smallrobust+SamllMedium+Smallweak\right)/3$ $-\left(Bigrobust+Bigmedium+Bigweak\right)/3$
SMB-investment	Size, investment	$\left(Smallconservative+SamllMedium+Smallaggressive\right)/3$ $-\left(Bigconservative+Bigmedium+Bigaggressive\right)/3$

Table 2. Summary statistics of the main variables

Variable	Obs.	Mean	Std. Dev.	Min	Max
Fund unadjusted return	3,397	0.00414	0.03079	−0.24583	0.13303
Fund risk-adjusted return	3,397	0.00150	0.01299	−0.09026	0.08896
Islamic-law compliance	3,397	0.70886	0.45435	0.00000	1.0000
Management fee	3,397	0.03897	0.01019	0.02130	0.06850
Age	3,397	11.8860	7.44027	1.0000	29.000
Size	3,397	17.5118	1.94670	8.94197	21.55116
CWI	43	0.12262	0.51165	−0.40668	2.07944
CWF	41	0.10066	0.36798	−0.31187	1.79175
TASI unadjusted returns	43	0.00352	0.03767	−0.16099	0.74098

Fund returns are identified as unadjusted returns measured by equation 2(2) $R_{i,t}=ln\left(\frac{P_{i,t}+D_{i,t}}{P_{i,\left(t-1\right)}}\right)$(2) and risk-adjusted returns are the funds’ excess returns over TASI estimated by equation 4(4) $(R_{Fi,t}-R_{ft})={\alpha }_i+{\beta }_{i,1}(R_{M,t}-R_{ft})+{\beta }_{i,2}SM{B}_t+{\beta }_{i,3}HM{L}_t+{\beta }_{i,4}RM{W}_t+{\beta }_{i,5}CM{A}_t+{\epsilon }_{i,t}$(4) . CWI is the weekly change in COVID-19 new confirmed cases and CWF is the weekly change in the number of COVID-19 fatalities. Islamic law is a dummy variable that signals 1 for funds that follow Islamic laws in their investments. The management fee is the percentage of the annual fees paid by subscribers to the managers of funds. The fund’s age is the number of years it has been in operation. Size is the natural logarithm of the TNA of the fund.

Table 3. Pairwise correlations between mutual fund returns and other variables

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)
Fund unadjusted-returns (1)	1.0000
Fund risk-adjusted returns (2)	0.4208	1.0000
CWI (3)	−0.5185	−0.2465	1.0000
CWF (4)	0.1880	0.0253	0.4833	1.0000
TASI returns (5)	0.8626	−0.0002	−0.4643	0.2091	1.0000
Islamic-law compliance (6)	0.0157	0.0225	0.0000	0.000	0.000	1.0000
Management fee (7)	−0.0069	−0.0069	0.0000	0.000	0.000	0.0161	1.0000
Age (8)	0.0023	−0.0063	0.0000	0.000	0.000	−0.1745	0.0167	1.0000
Size (9)	0.0116	−0.0015	−0.0257	−0.0227	0.0063	0.0158	−0.0303	0.5635	1.0000

Fund returns are identified as unadjusted returns measured by equation 2(2) $R_{i,t}=ln\left(\frac{P_{i,t}+D_{i,t}}{P_{i,\left(t-1\right)}}\right)$(2) and risk-adjusted returns are the funds’ excess returns over TASI estimated by equation 4(4) $(R_{Fi,t}-R_{ft})={\alpha }_i+{\beta }_{i,1}(R_{M,t}-R_{ft})+{\beta }_{i,2}SM{B}_t+{\beta }_{i,3}HM{L}_t+{\beta }_{i,4}RM{W}_t+{\beta }_{i,5}CM{A}_t+{\epsilon }_{i,t}$(4) . CWI is the weekly change in COVID-19 new confirmed cases and CWF is the weekly change in the number of COVID-19 fatalities. Islamic law is a dummy variable that signals 1 for funds that follow Islamic laws in their investments. The management fee is the percentage of the annual fees paid by subscribers to the managers of funds. The fund’s age is the number of years it has been in operation. Size is the natural logarithm of the TNA of the fund.

Table 4. Summary statistics of the weekly Fama-French five-factor model, March 2020 to December 2020

Variable	Obs	Mean %	Std.Dev %	Min %	Max %	Pairwise-Correlations
						TASIRP	SMB	HML	RMW	CMA
TASIRP	43	0.340	3.76822	− 16.118	7.397	1
SMB	43	0.104	2.67838	− 6.245	7.139	0.295	1
HML	43	−0.548	1.90601	− 5.305	4.179	0.260	−0.170	1
RMW	43	−0.060	2.02911	− 5.628	4.634	−0.308	−0.408	−0.082	1
CMA	43	0.034	1.31058	− 3.912	2.797	0.392	0.301	0.142	−0.111	1

TASIRP is the market risk premium measured as the returns of TASI minus the 1-month SAMA-bills rate of returns. SMB is the difference in returns of small stock portfolios and the big stock portfolios; HML is the difference in returns of the portfolios of high book-to-market ratio and low book-to-market ratio; RMW is the difference in returns of the portfolios of robust operating-income ratio and weak operating-income ratio; CMA is the difference in returns of the portfolios of conservative asset-growth ratio and aggressive asset-growth ratio.

Table 5. OLS-regression of the fund excess return on the Fama-French five-factor model, March 2020 to December 2020

Funds excess returns	Coef.	Std. Err.	t.stat	p-value	95% Conf. Interval
TASIRP	0.681623	0.020063	33.97	0.000	0.641679	0.721567
SMB	0.044372	0.015226	2.91	0.005	0.014057	0.074686
HML	0.072747	0.012014	6.06	0.000	0.048828	0.096666
RMW	−0.09052	0.014127	−6.41	0.000	−0.118655	−0.062403
CMA	−0.16150	0.014449	−1.12	0.267	−0.044918	0.012617
Cons	0.001507	0.000187	8.03	0.000	0.001134	0.001881
Obs = 3,397	F = 295.46	R sqr = 0.7511	Prob = 0.000	Root MSE = 0.01538

TASIRP is the market risk premium measured as the return of TASI minus the 1-month SAMA-bills rate of returns. SMB is the difference in returns of small stock portfolios and the big stock portfolios; HML is the difference in returns of the portfolios of high book-to-market ratio and low book-to-market ratio; RMW is the difference in returns of the portfolios of robust operating-income ratio and weak operating-income ratio; CMA is the difference in returns of the portfolios of conservative asset-growth ratio and aggressive asset-growth ratio.

Table 6. Pooled-OLS regression of funds unadjusted return on CWI and CWF

Funds unadjusted return performance	(1)	(2)	(3)	(4)
CWI	−0.0312*** (0.001)	−0.0312*** (0.001)
CWF			0.0115*** (0.000639)	0.0115*** (0.000639)
Islamic-law compliance		0.0012003*** (0.0003969)		.0008585 (0.0006222)
Management fee		−0.0228434 (0.0259617)		−.024163 (0.0324982)
Age		0.0000415* (0.0000244)		0.00006 (0.0000305)
Size		−0.0001254 (0.000106)		0.0000876 (0.0001581)
Constant	0.007963*** (0.000)	0.0097071*** (0.0025892)	0.0070695*** (0.0002733)	0.0057852* 0.0034642
Obs	3,397	3,397	3,239	3,239
R-sqr	0.2689	0.2692	0.0353	0.0358
F	943.81	240.72	321.04	80.01

Fund unadjusted return is the dependent variable. Independent variables are CWI, CWF, Islamic law, management fee, age, and size. Islamic law is a dummy variable signals 1 for funds that follow Islamic laws in their investments. Management fee is the percentage of the annual fees paid by subscribers to the managers of funds. The fund’s age is the number of years it has been in operation. Size is the natural logarithm of TNA. The model is estimated with heteroscedasticity robust standard errors (in parentheses). ***,**,* Represent statistical significance at 1%, 5%, and 10% levels, respectively.

Table 7. Pooled-OLS regression of fund risk-adjusted returns on growth in CWI and CWF

Funds risk-adjusted returns performance	(1)	(2)	(3)	(4)
CWI	−0.00626*** (0.00061)	−0.00626*** (0.00061)
CWF			0.00079* (0.00042)	0.00079* (0.00042)
Islamic-law compliance		0.00067* (0.00037)		0.00026 (0.00047)
Management fee		−0.00976 (0.01855)		−0.01189 (0.02153)
Age		0.000006 (0.00003)		−0.00002 (0.00003)
Size		−0.0000714 (0.0001)		−0.000002 (0.00013)
Constant	0.0022*** (0.00020)	0.0033* (0.00190)	0.0022*** (0.00020)	0.00285 (0.00246)
Obs	3,397	3,397	3,239	3,239
R-sqr	0.0608	0.0614	0.0006	0.0012
F	104.49	24.53	3.65	1.12

Funds risk-adjusted return is the dependent variable. Independent variables are CWI, CWF, Islamic law, management fee, age, and size. Islamic law is a dummy variable signals 1 for funds that follow Islamic laws in their investments. Management fee is the percentage of the annual fees paid by subscribers to the managers of funds. The fund’s age is the number of years it has been in operation. Size is the natural logarithm of TNA. The model is estimated with heteroscedasticity robust standard errors (in parentheses). ***,**,* Represent statistical significance at 1%, 5%, and 10% levels, respectively.

Table 8. Entity-and-time fixed effect regression model of funds unadjusted return, and funds risk-adjusted return on CWI and CWF

	Funds unadjusted returns	Funds unadjusted returns	Funds risk-adjusted returns	Funds risk-adjusted returns
CWI	−0.0560*** (0.00176)		−0.00356*** (0.00074)
CWF		0.02213*** (0.00077)		0.00168*** (0.00054)
Fund-fixed-effect dummy variable	Yes	Yes	Yes	Yes
Time-fixed-effect dummy variable	Yes	Yes	Yes	Yes
Constant	−0.00158 (0.00179)	0.01136*** (0.00108)	0.00372*** (0.00137)	0.00430*** (0.00111)
Obs	3,397	3,239	3,397	3,239
R-sqr	0.8015	0.7325	0.2787	0.2392
F	59.80	51.36	8.54	8.42

$R_{i,t}={\alpha }_i+{\beta }_{1}Cov{19}_{i,t}+\sum _{t=2}^t{D}_t+\sum _{i=2}^i{D}_i+{\upsilon }_{i,t},$ Fund unadjusted returns and funds risk-adjusted return are the dependent variables. Independent variables are CWI, CWF, $D_t$ is a set of time fixed-effect dummy variables, and $D_i$ is fund fixed-effect dummy variables. ${\upsilon }_{i,t}$ is error term. The model is estimated with heteroscedasticity robust standard errors (in parentheses). ***,**,* Represent statistical significance at 1%, 5%, and 10% levels, respectively.

Table 9. The impact of COVID-19 outbreak on returns of the market and the 79 mutual funds

Status	Fund Coefficient Status	Number of funds	As a percentage of 79
(1)Significantly higher	Coef. >—0.0338	3	3.8%
(2) No significant difference	Coef. =—0.0338	71	89.8%
(3) Significantly lower	Coef. <—0.0338	5	6.4%
Total		79 funds	100%

Table 9 provides the overall outcomes of the Wald test which compares the impact of the COVID-19 outbreak on the market and the 79 mutual funds. Funds with coefficients significantly higher than −.0338 were counted in the first row, funds with coefficients that do not significantly differ from −.0338 were counted in the second row, and funds with coefficients significantly lower than −.0338 were counted in the third row. The study only considers a significance level of 95%.

Figure 2. Time series returns’ movements for all sectors in the Saudi market from March 5^th to December 31^st, 2020. The authors estimated and analysed the variants in this figure.

Table A1. Summary statistics for weekly returns for 20 sectors’ indices in the Saudi stock exchange (TASI) between 5^th March and 31^st Dec 2020

Panel A: Average returns and standard deviations
sectors indices	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)	(13)	(14)	(15)	(16)	(17)	(18)	(19)	(20)
Mean	0.0015	0.0053	0.0098	−0.0012	0.0028	0.0118	0.0021	0.0043	0.0034	0.0103	0.0060	0.0091	0.0076	0.0008	0.0070	0.0075	0.0190	0.0056	0.00485	−0.0002
Std. Dev.	0.0279	0.0436	0.0616	0.04121	0.0505	0.0519	0.0546	0.0599	0.0458	0.0370	0.0345	0.0368	0.0474	0.0428	0.0525	0.0401	0.0678	0.0288	0.04466	0.04765
Panel B: Pairwise-correlations between the 20 sectors indices
(1)	1.0000
(2)	0.8727	1.0000
(3)	0.7502	0.8708	1.0000
(4)	0.8057	0.8874	0.8252	1.0000
(5)	0.7983	0.8771	0.8689	0.8770	1.0000
(6)	0.6488	0.7366	0.8284	0.6710	0.7106	1.0000
(7)	0.8075	0.8402	0.8833	0.8435	0.8590	0.8333	1.0000
(8)	0.7520	0.7768	0.8200	0.7417	0.7780	0.7045	0.8289	1.0000
(9)	0.7568	0.7809	0.8071	0.7718	0.8066	0.5966	0.7939	0.7694	1.0000
(10)	0.7049	0.5947	0.4013	0.5067	0.4850	0.4071	0.4910	0.4758	0.4068	1.0000
(11)	0.6993	0.7786	0.6908	0.6589	0.6522	0.5708	0.6550	0.6334	0.6681	0.4938	1.0000
(12)	0.6854	0.6931	0.7060	0.6551	0.6938	0.5698	0.6773	0.5604	0.6865	0.4300	0.5515	1.0000
(13)	0.5253	0.5554	0.5724	0.4745	0.5572	0.5451	0.5798	0.5036	0.3692	0.2408	0.4623	0.4616	1.0000
(14)	0.8705	0.9230	0.8110	0.8565	0.8579	0.6525	0.8043	0.7444	0.7756	0.5596	0.6883	0.6875	0.5540	1.0000
(15)	0.8010	0.8278	0.8781	0.7781	0.8543	0.8235	0.8922	0.8051	0.7373	0.4009	0.7328	0.6992	0.6412	0.7704	1.0000
(16)	0.7927	0.8468	0.8081	0.7807	0.7717	0.7016	0.8221	0.7103	0.7382	0.5773	0.7684	0.6595	0.5400	0.8025	0.8011	1.0000
(17)	0.5744	0.6270	0.6689	0.5779	0.6964	0.5333	0.6329	0.6033	0.5645	0.4661	0.5170	0.4232	0.4454	0.5767	0.6190	0.6331	1.0000
(18)	0.7664	0.8347	0.6664	0.6925	0.6442	0.6330	0.7064	0.6682	0.5894	0.6892	0.7855	0.5691	0.3869	0.7064	0.6954	0.7265	0.5483	1. 0000
(19)	0.6096	0.7058	0.6106	0.6466	0.6454	0.4976	0.5874	0.6002	0.5204	0.5499	0.5640	0.5017	0.2554	0.5850	0.6145	0.5773	0.5453	0.7623	1.0000
(20)	0.7598	0.8193	0.8555	0.8271	0.8452	0.7601	0.8125	0.6908	0.8128	0.4766	0.6987	0.6807	0.5362	0.7858	0.8384	0.7779	0.6661	0.6562	0.5931	1.0000

The sectors indices are as follow: (1) Energy, (2) Materials, (3) Capital Goods, (4) Commercial & Professional Svc., (5) Transportation, (6) Consumer Durables & Apparel, (7) Consumer Svc., (8) Media and Entmt, (9) Retailing, (10) Food & Staples Retailing, (11) Food & Beverages, (12) Health Care & Equip, (13) Pharma & Biotech, (14) Banks (15) Financials & Inv (16) Insurance (17) Software & Svc. (18) Telecom (19) Utilities (20) Real Estate Mgmt. & Devt.

Fama, E., & French, K. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116(1), 1–22. https://doi.org/10.1016/j.jfineco.2014.10.010

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