Performance metrics for Spanish investment funds

Abstract

This paper is useful for investors and managers of investment funds since it tries to identify the true performance of these portfolios. The empirical results obtained in the Spanish equity fund market provide evidence for the incorrect performance valuations when classical indexes are considered. These problems are caused by: 1) the asymmetric return distributions; 2) the negative return premia. On this subject, the application of the original measures proposed in this work leads to coherent performance rankings. So, these rankings suppose very useful information for fund investors to value the management quality of each fund and for fund managers to know their relative position with respect to the rest of the market. AbstractThe aim of this study is to examine the most appropriate way to capture the true performance of Spanish equity funds, considering that almost all have significantly asymmetric return distributions over the time period studied. We apply alternative risk measures, such as semi-standard deviation and absolute deviation and test if the associated performance measures provide markedly different rankings from the classic indices. We find that one subset of funds analysed displays negative return premia, and make an additional adjustment to the suggested performance metrics. Overall when comparing the rankings, we see strong evidence that -despite the strong asymmetry in returns -the non-traditional performance metrics do not differ markedly from the traditional measurements. This would point to the Spanish equity market behaving more like more mature and liquid markets, and hence being amenable to the application of classic performance and investment management tools.

Do asymmetric risk metrics influence performance persistence?

“…This asymmetry problem in the Spanish market, as Ferruz et al 13 point out, could be due to the youth of the market because the investment funds have only experienced high growth in the last 15 years, which is a short period of time compared to more mature markets like the US or UK.…”

“…Negative return premiums, by comparing portfolio return with risk-free assets (Treasury Repos with overnight securities), are also detected in the vast majority of the money market funds analysed. This problem is also shown in Ferruz et al 13 when analysing the Spanish equity fund industry; so, we follow the same complementary approach in this study, previously proposed by Ferruz et al 14 and Ferruz and Sarto. 15,16 The two aims tackled in this paper are original, and little research has been carried out on them in relation to Spanish money market funds.…”