Can mutual fund managers beat the market?
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The purpose of this thesis is to analyze and understand whether fund managers have superior abilities when it comes to investing and managing capital in the stock market. The analysis is conducted on the basis of 55 Norwegian mutual funds over a time period that ranges from 01.01.2000-31.12.2010. The dataset concerning the funds was obtained with the help of Morningstar, Storebrand, DnB NOR and Danske Invest. It is a unique dataset as far as the author is concerned, which has not been analyzed before. In addition, the data for the market index was supplied by Oslo Børs, and the risk-free rate was obtained from Norges Bank’s website. The data was analyzed in two ways. Firstly, the whole dataset, also called an unbalanced dataset, was analyzed. In addition, to obtain more robust results, the dataset was modified to a balanced dataset, so that it included observations for all the funds over the same period of time. Different portfolio performance measures have been calculated on the basis of the quarterly returns of the funds. These performance measures have been compared to the performance of the Oslo Børs Mutual Fund Index (OSEFX). The performance measures applied in the thesis are the Sharpe ratio, the Treynor ratio and Jensen’s Alpha. In addition, the latter part of the thesis examines whether the excess return of each fund is accomplished on the basis of security selection abilities or market timing abilities. The models applied for this part of the analysis are the Henriksson-Merton market timing model and the Treynor-Mazuy model. This thesis both confirms and rejects previous U.S. studies. The findings in this paper show that most of the funds are able to earn higher returns than the market. However, the results achieved when applying the Henriksson-Merton model and the Treynor-Mazuy model confirms previous research, which states that excessive earnings are not the result of market-timing abilities. The research performed in this thesis finds that about 50% of the fund managers in this study possess a certain skill when it comes to selecting undervalued securities.
Master's thesis in Finance