Active versus Passive Management of International Mutual Funds ...

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26 Sharpe ratio for the passively managed S&P/ASX Index and the actively managed Equity Asia Pacific Investment Category. H6 a : For the 1995 to 2008 periods, there is a significant difference between the mean Sharpe ratio for the passively managed S&P/ASX Index and the actively managed Equity Asia Pacific Investment Category. Weekly Sharpe ratios were calculated from daily data for the S&P/ASX Index and Morningstar Equity Asia Pacific Investment Category for the period January 1, 1995-December 31, 2008 with 731 data points. Appendix C presents a side-by-side comparison of the indices’ weekly Sharpe ratios. Table 8 below shows the F-test two-sample for variances result. The 3.118 F-value for the Morningstar Equity Asia Pacific Investment Category is more than the 1.130 F-critical onetail value. The indication is a rejection of the null hypothesis due to the large F-value. The 5.68521E-51 p-value is less than the assumed .05 level of significance (alpha); an indication the null hypothesis is rejected. Table 8: F-Test Two Sample for Variances of Sharpe Ratios for Morningstar Equity Asia Pacific Investment Category versus S&P/ASX Index Equity Asia Pacific Investment Variables Category S&P/ASX Mean 0.062940803 0.10391187 Variance 1.007490036 0.323131947 Observations 731 731 Df 730 730 F 3.117890527 1.13 P(F
tend to outperform active managers in the domestic market whereas research has been limited regarding international mutual fund management. In regards to international mutual fund management, Fortin and Michelson [37] found that 3 out 5 of the actively managed Morningstar mutual fund categories outperformed the index and Arugaslan, Edwards, and Samant [8] found that once risk is incorporated, investors may find actively managed mutual funds less attractive. In this study the actively managed Equity Europe and Equity Asia Pacific categories outperformed the passive indices (proxies for passive management) in all six hypotheses tested. This study adds support to the findings of Fortin and Michelson [37]. Their findings, as addressed previously, showed the active Pacific category to outperform the benchmark index whereas the Europe category did not outperform the associated index. This study utilized different benchmark indices but found the Equity Europe and Equity Asia Pacific actively managed categories to outperform the tested indices. Given Fama’s [34] reaffirmation of the Efficient Market Hypothesis where he suggests that limited information availability in international markets will lead to abnormal returns supports the findings of this study. The investor must beware as risk may significantly reduce the attractiveness of the international funds as evidenced by the study of Arugaslan, Edwards, and Samant [8]. Limitations of the study A limitation of the study was that survivorship may have skewed the findings toward the actively managed categories. In addition, management fees were not included in the study. Again this may tilt the results toward the actively managed categories as the fees are notably higher for active funds as opposed to passive index funds. Furthermore, the indices used were not the benchmark indices addressed in the prospectus of funds within the categories tested. Another limitation of the study was the inclusive period, 1995-2008. Although the actively managed categories outperformed the passive indices in the period one would expect the disaggregated bull market performance would be significantly superior. Implications Given the findings of the study, investors may want to consider additional diversification into the international market. This diversification should however consider the associated risk with any given investment. In addition, based on the results of this study it appears to be in the best interest of the investor to seek active management for international mutual funds. Recommendations for future research Future researchers may want to disaggregate the bull and bear markets, consider benchmark indices addressed in the prospectus of the funds included in the study, include non surviving funds in the study, disaggregate the fund categories into smaller cross sections such as large cap and small cap, and test other international indices such as Russell Global Large Cap Index and Russell Global Small Cap Index. 27
Page 1 and 2: Active versus Passive Management of
Page 3 and 4: suspect that anomalies would disapp
Page 5 and 6: investors [6]. Siegel [79] added to
Page 7 and 8: Portfolio performance measures Trey
Page 9 and 10: hypothetical portfolios as a means
Page 11 and 12: covered funds from 1992 to 1996 and
Page 13 and 14: where anomalies continue to exist.
Page 15 and 16: means someone sold their position.
Page 17 and 18: called the Noisy Market Hypothesis.
Page 19 and 20: 19 indices, Morgan Stanley Capital
Page 21 and 22: б i = the standard deviation of th
Page 23 and 24: 23 indices’ weekly Sharpe ratios.
Page 25: 25 (alpha); a further indication th
Page 29 and 30: 02/27/1995 -0.655 ‐0.268 ‐0.156
Page 31 and 32: 10/21/1996 ‐0.989 ‐0.383 ‐0.2
Page 33 and 34: 06/15/1998 ‐0.225 ‐0.170 ‐0.0
Page 35 and 36: 02/07/2000 0.810 0.183 0.010 0.204
Page 37 and 38: 10/01/2001 0.473 0.123 0.287 0.380
Page 39 and 40: 05/26/2003 0.568 0.782 0.329 0.908
Page 41 and 42: 01/17/2005 0.149 ‐0.131 ‐0.208
Page 43 and 44: 09/11/2006 0.468 0.511 ‐0.054 0.9
Page 45 and 46: 45 05/05/2008 ‐0.072 ‐0.508 ‐
Page 47 and 48: 10/16/1995 ‐1.952 0.430 0.006 0.2
Page 49 and 50: 05/12/1997 1.006 0.498 0.169 0.912
Page 51 and 52: 12/07/1998 0.350 ‐0.220 ‐0.001
Page 53 and 54: 07/03/2000 ‐0.041 ‐0.034 0.857
Page 55 and 56: 01/28/2002 ‐0.173 ‐0.505 ‐0.0
Page 57 and 58: 08/25/2003 0.118 0.159 0.338 0.450
Page 59 and 60: 03/21/2005 ‐0.583 ‐0.508 ‐0.6
Page 61 and 62: 10/16/2006 0.583 0.311 0.245 10/23/
Page 63 and 64: 63 05/12/2008 1.075 1.218 0.506 1.0
Page 65 and 66: 25. Cremers, M., & Petajisto, A. (2
Page 67: 63(6), 31-37. 68. Reilly, F. K., &

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