Predictive power of Brazilian equity fund performance using R2 as a measure of selectivity
Autor(a) principal: | |
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Data de Publicação: | 2017 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng por |
Título da fonte: | Revista Contabilidade & Finanças (Online) |
Texto Completo: | https://www.revistas.usp.br/rcf/article/view/131276 |
Resumo: | This paper aimed to investigate the impact of levels of selectivity on the performance of equity funds using a methodology applied for the first time ever (as far as we know) in the Brazilian market. As an indicator of the activity level of a fund, we proposed the coefficient of determination (R2) of the regression of its returns over market returns. In total, 867 funds were analyzed in the period between November 2004 and October 2014. The hypothesis tested is that more selective funds perform better to compensate for their higher operating costs. This hypothesis was confirmed in the Brazilian market. Dynamic equally-weighted portfolios of funds were simulated, according to their past R2 and alphas, with monthly rebalancing and 12-month moving windows. The portfolio of the most selective funds had a Sharpe ratio of 0.0494, on a monthly basis, while the portfolio of the least selective funds had a Sharpe ratio of -0.0314. Performance was also higher in evaluations involving excess returns, Jensen’s alpha, and accumulated returns, as well as when compared to randomly selected portfolios. Moreover, past performance (as measured by Jensen’s alpha) was also a predictor of future performance. Particularly, the portfolio composed by funds with a higher past alpha and lower past R2 presented a Sharpe ratio of 0.1483 and a Jensen’s alpha of 0.87% (significant at 1%), while the one composed of funds with a lower past alpha and lower activity level presented a Sharpe ratio of -0.0673 and an alpha of -0.32% (also significant at 1%). |
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Predictive power of Brazilian equity fund performance using R2 as a measure of selectivityPoder preditivo do desempenho de fundos brasileiros de ações a partir do R2 como medida do grau de seletividadeseletividade de fundos de açõesmercado financeiro brasileiropoder preditivoíndice Sharpealfa de Jensenselectivity of equity fundsfinancial brazilian marketpredictive powerSharpe ratioJensen’s alphaThis paper aimed to investigate the impact of levels of selectivity on the performance of equity funds using a methodology applied for the first time ever (as far as we know) in the Brazilian market. As an indicator of the activity level of a fund, we proposed the coefficient of determination (R2) of the regression of its returns over market returns. In total, 867 funds were analyzed in the period between November 2004 and October 2014. The hypothesis tested is that more selective funds perform better to compensate for their higher operating costs. This hypothesis was confirmed in the Brazilian market. Dynamic equally-weighted portfolios of funds were simulated, according to their past R2 and alphas, with monthly rebalancing and 12-month moving windows. The portfolio of the most selective funds had a Sharpe ratio of 0.0494, on a monthly basis, while the portfolio of the least selective funds had a Sharpe ratio of -0.0314. Performance was also higher in evaluations involving excess returns, Jensen’s alpha, and accumulated returns, as well as when compared to randomly selected portfolios. Moreover, past performance (as measured by Jensen’s alpha) was also a predictor of future performance. Particularly, the portfolio composed by funds with a higher past alpha and lower past R2 presented a Sharpe ratio of 0.1483 and a Jensen’s alpha of 0.87% (significant at 1%), while the one composed of funds with a lower past alpha and lower activity level presented a Sharpe ratio of -0.0673 and an alpha of -0.32% (also significant at 1%). Este trabalho investigou o impacto do grau de seletividade dos fundos em sua performance por meio de uma metodologia pioneiramente (até onde foi verificado) aplicada no mercado brasileiro. Como indicador do grau de atividade do fundo, propusemos o coeficiente de determinação (R2) da regressão de seus retornos sobre os retornos de mercado. Foram avaliados 867 fundos de ações brasileiros no período de novembro de 2004 a outubro de 2014. Foi testada a hipótese de que fundos mais seletivos apresentariam melhores retornos para compensar seus custos mais elevados. Essa hipótese foi confirmada no mercado brasileiro. A avaliação foi feita pela subdivisão da amostra em portfólios igualmente ponderados, de acordo com o R2 e alfas históricos dos fundos, com rebalanceamento mensal e janelas móveis de 12 meses. O portfólio construído por fundos mais seletivos obteve índice Sharpe de 0,0494, em base mensal, e aquele composto por fundos menos seletivos registrou um índice de -0,0314. A performance foi superior também na avaliação pelo excesso de retorno, pelo alfa de Jensen e pelo retorno acumulado, e na comparação com portfólios formados por fundos selecionados aleatoriamente. Além disso, a performance passada (medida pelo alfa de Jensen) também se mostrou um preditor de performance. Em particular, o portfólio formado por fundos com menor R2 e maior alfa históricos apresentou índice Sharpe de 0,1483 e alfa de Jensen (significativo a 1%) de 0,87%, enquanto aquele formado por fundos com menor grau de atividade e menor alfa histórico obteve índice Sharpe de -0,0673 e alfa de Jensen (significativo a 1%) de -0,32%.Universidade de São Paulo. Faculdade de Economia, Administração, Contabilidade e Atuária2017-08-01info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersionapplication/pdfapplication/pdfhttps://www.revistas.usp.br/rcf/article/view/13127610.1590/1808-057x201703590Revista Contabilidade & Finanças; v. 28 n. 74 (2017); 282-296Revista Contabilidade & Finanças; Vol. 28 No. 74 (2017); 282-296Revista Contabilidade & Finanças; Vol. 28 Núm. 74 (2017); 282-2961808-057X1519-7077reponame:Revista Contabilidade & Finanças (Online)instname:Universidade de São Paulo (USP)instacron:USPengporhttps://www.revistas.usp.br/rcf/article/view/131276/127675https://www.revistas.usp.br/rcf/article/view/131276/127676Copyright (c) 2018 Revista Contabilidade & Finançasinfo:eu-repo/semantics/openAccessGuzella, Marcelo dos SantosCampani, Carlos Heitor2017-04-18T20:00:34Zoai:revistas.usp.br:article/131276Revistahttp://www.revistas.usp.br/rcf/indexPUBhttps://old.scielo.br/oai/scielo-oai.phprecont@usp.br||recont@usp.br1808-057X1519-7077opendoar:2017-04-18T20:00:34Revista Contabilidade & Finanças (Online) - Universidade de São Paulo (USP)false |
dc.title.none.fl_str_mv |
Predictive power of Brazilian equity fund performance using R2 as a measure of selectivity Poder preditivo do desempenho de fundos brasileiros de ações a partir do R2 como medida do grau de seletividade |
title |
Predictive power of Brazilian equity fund performance using R2 as a measure of selectivity |
spellingShingle |
Predictive power of Brazilian equity fund performance using R2 as a measure of selectivity Guzella, Marcelo dos Santos seletividade de fundos de ações mercado financeiro brasileiro poder preditivo índice Sharpe alfa de Jensen selectivity of equity funds financial brazilian market predictive power Sharpe ratio Jensen’s alpha |
title_short |
Predictive power of Brazilian equity fund performance using R2 as a measure of selectivity |
title_full |
Predictive power of Brazilian equity fund performance using R2 as a measure of selectivity |
title_fullStr |
Predictive power of Brazilian equity fund performance using R2 as a measure of selectivity |
title_full_unstemmed |
Predictive power of Brazilian equity fund performance using R2 as a measure of selectivity |
title_sort |
Predictive power of Brazilian equity fund performance using R2 as a measure of selectivity |
author |
Guzella, Marcelo dos Santos |
author_facet |
Guzella, Marcelo dos Santos Campani, Carlos Heitor |
author_role |
author |
author2 |
Campani, Carlos Heitor |
author2_role |
author |
dc.contributor.author.fl_str_mv |
Guzella, Marcelo dos Santos Campani, Carlos Heitor |
dc.subject.por.fl_str_mv |
seletividade de fundos de ações mercado financeiro brasileiro poder preditivo índice Sharpe alfa de Jensen selectivity of equity funds financial brazilian market predictive power Sharpe ratio Jensen’s alpha |
topic |
seletividade de fundos de ações mercado financeiro brasileiro poder preditivo índice Sharpe alfa de Jensen selectivity of equity funds financial brazilian market predictive power Sharpe ratio Jensen’s alpha |
description |
This paper aimed to investigate the impact of levels of selectivity on the performance of equity funds using a methodology applied for the first time ever (as far as we know) in the Brazilian market. As an indicator of the activity level of a fund, we proposed the coefficient of determination (R2) of the regression of its returns over market returns. In total, 867 funds were analyzed in the period between November 2004 and October 2014. The hypothesis tested is that more selective funds perform better to compensate for their higher operating costs. This hypothesis was confirmed in the Brazilian market. Dynamic equally-weighted portfolios of funds were simulated, according to their past R2 and alphas, with monthly rebalancing and 12-month moving windows. The portfolio of the most selective funds had a Sharpe ratio of 0.0494, on a monthly basis, while the portfolio of the least selective funds had a Sharpe ratio of -0.0314. Performance was also higher in evaluations involving excess returns, Jensen’s alpha, and accumulated returns, as well as when compared to randomly selected portfolios. Moreover, past performance (as measured by Jensen’s alpha) was also a predictor of future performance. Particularly, the portfolio composed by funds with a higher past alpha and lower past R2 presented a Sharpe ratio of 0.1483 and a Jensen’s alpha of 0.87% (significant at 1%), while the one composed of funds with a lower past alpha and lower activity level presented a Sharpe ratio of -0.0673 and an alpha of -0.32% (also significant at 1%). |
publishDate |
2017 |
dc.date.none.fl_str_mv |
2017-08-01 |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
https://www.revistas.usp.br/rcf/article/view/131276 10.1590/1808-057x201703590 |
url |
https://www.revistas.usp.br/rcf/article/view/131276 |
identifier_str_mv |
10.1590/1808-057x201703590 |
dc.language.iso.fl_str_mv |
eng por |
language |
eng por |
dc.relation.none.fl_str_mv |
https://www.revistas.usp.br/rcf/article/view/131276/127675 https://www.revistas.usp.br/rcf/article/view/131276/127676 |
dc.rights.driver.fl_str_mv |
Copyright (c) 2018 Revista Contabilidade & Finanças info:eu-repo/semantics/openAccess |
rights_invalid_str_mv |
Copyright (c) 2018 Revista Contabilidade & Finanças |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf application/pdf |
dc.publisher.none.fl_str_mv |
Universidade de São Paulo. Faculdade de Economia, Administração, Contabilidade e Atuária |
publisher.none.fl_str_mv |
Universidade de São Paulo. Faculdade de Economia, Administração, Contabilidade e Atuária |
dc.source.none.fl_str_mv |
Revista Contabilidade & Finanças; v. 28 n. 74 (2017); 282-296 Revista Contabilidade & Finanças; Vol. 28 No. 74 (2017); 282-296 Revista Contabilidade & Finanças; Vol. 28 Núm. 74 (2017); 282-296 1808-057X 1519-7077 reponame:Revista Contabilidade & Finanças (Online) instname:Universidade de São Paulo (USP) instacron:USP |
instname_str |
Universidade de São Paulo (USP) |
instacron_str |
USP |
institution |
USP |
reponame_str |
Revista Contabilidade & Finanças (Online) |
collection |
Revista Contabilidade & Finanças (Online) |
repository.name.fl_str_mv |
Revista Contabilidade & Finanças (Online) - Universidade de São Paulo (USP) |
repository.mail.fl_str_mv |
recont@usp.br||recont@usp.br |
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1787713777352835072 |