Question

Discuss investment manager skill and why managers do not consistently generate positive risk adjusted returns.

Answer 1

Investment Management is the most important and competitive career in finance industry. Only a trained, skilled and dedicated person can manage the investment and asset maintenance of the firm. Hence, the investment manager plays a pivotal role in management of the firm.

Skills of Investment Manager

• The investment manager should have a proper analytical skill for the prediction of qualitative and quantitative analysis of stocks and bonds.
• He must possess better communication skill to contact with other individuals or companies.
• The manager should be confident in making decisions, taking any actions and to oppose risk.
• The most important skill the manager must possess is the problem solving skill. The investment and asset management involves a lot of risk and the manager can be able to solve the problems arising.
• The manager must be a self- motivated person and must have the ability to work under any pressure or problems as the investment market has many problems.
• The investment manager can have a good information technology skill as the competitive world is running with more technologies.
• He should have a keen interest in financial markets and understand the market for his better knowledge.

An Empirical Research on Fund Managers' Skill and Accrual Quality Risk Premium : The Evidence from China

The paper explains the effect of accrual quality risk on fund investment decision and explains if the fund managers use stock accrual quality and influence of fund's excess returns. The paper used annual observation of Chinese funds from 2005 to 2016.

Empirical Prediction

The paper assumes that the fund managers have stock selecting ability and they can select stocks with poor quality to obtain more returns. Thus the prediction was made as accrual risk premium in mutual fund market of China. Also, the investment managers may differ with their decision ,risk assurance and skill in mutual fund. Hence, it is assumed that high skilled managers earn high premium than low skilled managers.

Empirical Results

The paper should conclude with the following empirical results,

• The fund managers are using accrual quality information for effectiveness.
• The accrual quality is a risk pricing factor and the managers can earn excess return from their strategy.
• The stock selecting ability of fund managers is different. The excellent skilled managers can earn more return than poor skilled managers.

Citation:

Yang, Q. (2018) "An Empirical Research on Fund Managers' Skill and Accrual Quality Risk Premium: The Evidence from China", Open Journal of Business and Management, 6, 373- 381. Doi: 10.4236/ojbm.2018.62027

An Empirical Study to Explore the Risk- Adjusted Performance of Mutual Funds: A Case of Pakistan

The research paper explains the risk adjusted performance of mutual funds in Pakistan. The data for the research paper was collected from many authentic websites of mutual funds and other online websites.

Empirical Prediction

The research mainly aims at the risk adjusted performance of measured mutual funds are up to the mark. It also wants to find out the difference between expected performance level and absolute performance level of mutual funds market.

Empirical Results

The research concludes with the following empirical results

• The absolute performance and returns are higher than the risk adjusted performance of mutual funds.
• The risk factor also varies with the time frame of returns.
• The risk adjusted return for majority of income in mutual funds are positive.
• The investors are advised not to limit their analysis on mutual funds and to consider wide range of mutual funds despite their risk appetite.
• It is advisable to alter the portfolio of mutual fund companies.

Citation:

"An Empirical Study to explore the Risk- Adjusted Performance of Mutual Funds: A Case of Pakistan", March 2020, International Journal of Financial Engineering 07 (1): 2050001. Doi: 10.1142/S2424786320500012.

Citations from Investment and Asset Pricing Literature :

1. Matteo Rossi, "The Capital Asset Pricing Model: A Critical Literature Review", January 2016, Global Business and Economic Review 18(5): 604. DOI: 10.1504/GBER.2016.10000254.

2. Saban Celik, "Theoretical and Empirical Review of Asset Pricing Models: A Structural Synthesis", April 2012, International Journal of Economics and Financial Issues 2(2): 141- 178.