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Title: Mutual funds performance in emerging markets : an empirical investigation on the Egyptian and Saudi open ended funds
Author: El Mosallamy, Dalia Ahmed
Awarding Body: University of the West of England, Bristol
Current Institution: University of the West of England, Bristol
Date of Award: 2011
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Many emerging markets have started a continuous process of developing their stock markets with the goal of deepening these markets and improving the corporate governance within, in the belief that such developments will ultimately improve productivity and the rate of economic growth as well as attract foreign investments. The ability of financial market development to deliver these benefits depends mainly on their 'efficiency'. Egypt and Saudi Arabia are two leading emerging markets in the Arab region which are closely examined in this study, with a view to answer two key questions: Have the measures adopted by these two markets over the past ten years been effective in increasing their efficiency and thus are these markets actually starting to behave like the more developed markets? If this is not true, did mutual fund investors in either market achieve positive abnormal performance over this period? This study first examines the extent to which the Capital Market Authorities in these markets are achieving their goal of effectively developing the Egyptian and the Saudi capital markets. The main laws and regulations governing their performance and how effective the changes and amendments are in enhancing the efficiency of these two markets under study are also presented (chapter 2). Second, an event study is carried out to test for semi-strong informational efficiency in the two markets at the time of the 2008 global financial crisis. The chapter concludes that the two markets did not show the characteristics of semi-strong form I' efficiency (chapter 3). Thirdly, the study examines the performance of a sample of mutual funds from each market for the period starting December 31st, 2001 and ending December 31S\ 2009, utilizing Capital Asset Performance evaluation measures to see if any of the funds were able to realize abnormal returns, since the presence of abnormal returns may be a symptom of the markets' continued immaturity. The results suggest that none of the funds was able to achieve positive abnormal return. On the contrary, inferior Performance was frequently witnessed specifically in the Egyptian market (chapter 4). Market timing and security selection tests are then adopted. Henrikson Merton (1981) and Treynor Mazuy (1966) models in addition to the Fama (1972) net selectivity measures are all utilized to examine the presence of market timing and security selection abilities, if any, for the sampled mutual funds in the two markets under study. Mixed results are reported but concluded that on average Egyptian mutual funds do not possess market timing skills but showed very weak evidence of security selection skills unlike the Saudi market funds which showed weak market timing and security selection abilities (chapter 5). Finally, tests of performance evaluation based on downside CAPM are then presented resulting in different rankings for mutual funds and concluding with a recommendation in favour of the use of downside beta and down side performance evaluation measures instead of the traditional CAPM performance evaluation measures (chapter 6). The study concludes that despite the fact that the two markets are informationally inefficient and there is a possibility of realising abnormal returns, mutual funds sampled in the two markets were unable to grasp this opportunity or to pass some of the benefits in the form of positive performance to their investors. The results show that this poor performance is not only caused by weaknesses in the Capital Asset Pricing model as a framework for evaluating mutual funds' performance in emerging markets but there are several factors combined together causing this unsatisfactory performance. There is a problem in the level of the investor's appropriate knowledge and investment background. There are problems on the part of the capital market authorities of the two markets, the level of corporate governance, the enforcement of laws and regulations, the level of foreigners' participation, and other structural rigidities that exist therein. An these need rapid and effective improvement. This is in addition to the effect of the bank-based system in trading that actually hinders the development of the two markets. The main implications of this study are that the underperformance reported for mutual funds is not only due to the unsuitability of the CAPM model and its performance evaluation measures but also a direct result of true unsatisfactory performance on the part of fund managers and a highly volatile stock market. investors do not seem to realise that they do not have the appropriate investment background. Some mutual funds {especially in Egypt} with persistent underperformance should be liquidated as their investors would be better off investing in treasury bills. More importantly, all the reforms, amendments to laws . and regulations as well as other efforts made by the capital market authorities in the two markets under study are still ineffective in enhancing the markets' efficiency and thus, there is still a long way for these two markets to go to increase efficiency, productivity and economic growth. The study concludes with the following recommendations: • Institutional strengthening is essential for both markets to reduce bubbles, increase stability and increase the depth of the market. • Larger scale foreign investment is needed and this requires the removal of any existing restrictions. • An increase in the number of listed companies and more independence from the central bank (especially for the Saudi market) are needed, as well as an improvement in the channels for disseminating information in both markets to provide for fair, timely and cost effective access. • More investment alternatives for investors such as derivatives and options are required. • More enforcement of laws and regulations especially with respect to information transparency and disclosure requirements would improve performance. There remains a need for future research to examine fund performance using other models as the arbitrage pricing theory, other indices such as medium and small cap indices, and an examination of the performance of the newer and relatively more popular Islamic funds as opposed to the conventional funds.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available