Optimized drawdown risk in evaluating the performance of Malaysian mutual funds

Mohammad Reza Tavakoli Baghdadabad, Fauzias Matnor, Izani Ibrahim

    Research output: Contribution to journalArticle

    5 Citations (Scopus)

    Abstract

    Purpose – This paper aims to evaluate the risk-adjusted performance of Malaysian mutual funds using optimized drawdown risk measures (ODRMs) based on modern portfolio theory, and to represent the results in a manner which is easily understood by average investors and portfolio managers. Design/methodology/approach – This study evaluates the performance of 70 Malaysian mutual funds using risk-adjusted returns during 2000-2011. The ODRM is primarily calculated by 70 linear programming models, consequently seven new optimized risk-adjusted performance measures including Sharpe, Treynor, M-squared, Jensen's alpha, information ratio (IR), MSR, and FPI are proposed to evaluate these funds. Findings – The results of this study have several implications. First, the ODRM can be an alternative risk measure to optimize the selection of mutual funds. Second, it proposes new seven optimized performance measures of Sharpe, Treynor, M-square, Jensen's alpha, IR, MSR, and FPI. These measures help fund managers to evaluate the performance of Malaysian mutual funds optimally. Third, No-Islamic funds have the upper performance than Islamic funds based on the results of optimized measures and robustness tests. Fourth, the majority of surveying funds over-perform the benchmark indexes. Practical implications – The research evidence reported by this study can be utilized as input in the process of decision making by small and average investors and portfolio managers who are seeking the possibility of participating in Malaysian stock market by mutual funds. Originality/value – This paper is the first study that optimizes the drawdown risk measure to evaluate the performance of Malaysian mutual funds and propose seven optimized measures, Sharpe, Treynor, M-Square, Jensen's alpha, IR, MSR, and FPI.

    Original languageEnglish
    Pages (from-to)138-162
    Number of pages25
    JournalJournal of Islamic Accounting and Business Research
    Volume3
    Issue number2
    DOIs
    Publication statusPublished - 21 Sep 2012

    Fingerprint

    Mutual funds
    Risk measures
    Risk-adjusted performance
    Performance measures
    Managers
    Investors
    Fund managers
    Modern portfolio theory
    Benchmark
    Decision making
    Linear programming
    Risk-adjusted returns
    Robustness test
    Design methodology
    Stock market

    Keywords

    • Drawdown risk measure
    • Financial risk
    • Malaysia
    • Mutual fund
    • Optimized drawdown risk measure
    • Performance evaluation
    • Risk management
    • Unit trusts

    ASJC Scopus subject areas

    • Accounting
    • Business and International Management
    • Strategy and Management

    Cite this

    Optimized drawdown risk in evaluating the performance of Malaysian mutual funds. / Reza Tavakoli Baghdadabad, Mohammad; Matnor, Fauzias; Ibrahim, Izani.

    In: Journal of Islamic Accounting and Business Research, Vol. 3, No. 2, 21.09.2012, p. 138-162.

    Research output: Contribution to journalArticle

    Reza Tavakoli Baghdadabad, Mohammad ; Matnor, Fauzias ; Ibrahim, Izani. / Optimized drawdown risk in evaluating the performance of Malaysian mutual funds. In: Journal of Islamic Accounting and Business Research. 2012 ; Vol. 3, No. 2. pp. 138-162.
    @article{a0a480221b6d469a9320257c34019e5c,
    title = "Optimized drawdown risk in evaluating the performance of Malaysian mutual funds",
    abstract = "Purpose – This paper aims to evaluate the risk-adjusted performance of Malaysian mutual funds using optimized drawdown risk measures (ODRMs) based on modern portfolio theory, and to represent the results in a manner which is easily understood by average investors and portfolio managers. Design/methodology/approach – This study evaluates the performance of 70 Malaysian mutual funds using risk-adjusted returns during 2000-2011. The ODRM is primarily calculated by 70 linear programming models, consequently seven new optimized risk-adjusted performance measures including Sharpe, Treynor, M-squared, Jensen's alpha, information ratio (IR), MSR, and FPI are proposed to evaluate these funds. Findings – The results of this study have several implications. First, the ODRM can be an alternative risk measure to optimize the selection of mutual funds. Second, it proposes new seven optimized performance measures of Sharpe, Treynor, M-square, Jensen's alpha, IR, MSR, and FPI. These measures help fund managers to evaluate the performance of Malaysian mutual funds optimally. Third, No-Islamic funds have the upper performance than Islamic funds based on the results of optimized measures and robustness tests. Fourth, the majority of surveying funds over-perform the benchmark indexes. Practical implications – The research evidence reported by this study can be utilized as input in the process of decision making by small and average investors and portfolio managers who are seeking the possibility of participating in Malaysian stock market by mutual funds. Originality/value – This paper is the first study that optimizes the drawdown risk measure to evaluate the performance of Malaysian mutual funds and propose seven optimized measures, Sharpe, Treynor, M-Square, Jensen's alpha, IR, MSR, and FPI.",
    keywords = "Drawdown risk measure, Financial risk, Malaysia, Mutual fund, Optimized drawdown risk measure, Performance evaluation, Risk management, Unit trusts",
    author = "{Reza Tavakoli Baghdadabad}, Mohammad and Fauzias Matnor and Izani Ibrahim",
    year = "2012",
    month = "9",
    day = "21",
    doi = "10.1108/17590811211265957",
    language = "English",
    volume = "3",
    pages = "138--162",
    journal = "Journal of Islamic Accounting and Business Research",
    issn = "1759-0817",
    publisher = "Emerald Group Publishing Ltd.",
    number = "2",

    }

    TY - JOUR

    T1 - Optimized drawdown risk in evaluating the performance of Malaysian mutual funds

    AU - Reza Tavakoli Baghdadabad, Mohammad

    AU - Matnor, Fauzias

    AU - Ibrahim, Izani

    PY - 2012/9/21

    Y1 - 2012/9/21

    N2 - Purpose – This paper aims to evaluate the risk-adjusted performance of Malaysian mutual funds using optimized drawdown risk measures (ODRMs) based on modern portfolio theory, and to represent the results in a manner which is easily understood by average investors and portfolio managers. Design/methodology/approach – This study evaluates the performance of 70 Malaysian mutual funds using risk-adjusted returns during 2000-2011. The ODRM is primarily calculated by 70 linear programming models, consequently seven new optimized risk-adjusted performance measures including Sharpe, Treynor, M-squared, Jensen's alpha, information ratio (IR), MSR, and FPI are proposed to evaluate these funds. Findings – The results of this study have several implications. First, the ODRM can be an alternative risk measure to optimize the selection of mutual funds. Second, it proposes new seven optimized performance measures of Sharpe, Treynor, M-square, Jensen's alpha, IR, MSR, and FPI. These measures help fund managers to evaluate the performance of Malaysian mutual funds optimally. Third, No-Islamic funds have the upper performance than Islamic funds based on the results of optimized measures and robustness tests. Fourth, the majority of surveying funds over-perform the benchmark indexes. Practical implications – The research evidence reported by this study can be utilized as input in the process of decision making by small and average investors and portfolio managers who are seeking the possibility of participating in Malaysian stock market by mutual funds. Originality/value – This paper is the first study that optimizes the drawdown risk measure to evaluate the performance of Malaysian mutual funds and propose seven optimized measures, Sharpe, Treynor, M-Square, Jensen's alpha, IR, MSR, and FPI.

    AB - Purpose – This paper aims to evaluate the risk-adjusted performance of Malaysian mutual funds using optimized drawdown risk measures (ODRMs) based on modern portfolio theory, and to represent the results in a manner which is easily understood by average investors and portfolio managers. Design/methodology/approach – This study evaluates the performance of 70 Malaysian mutual funds using risk-adjusted returns during 2000-2011. The ODRM is primarily calculated by 70 linear programming models, consequently seven new optimized risk-adjusted performance measures including Sharpe, Treynor, M-squared, Jensen's alpha, information ratio (IR), MSR, and FPI are proposed to evaluate these funds. Findings – The results of this study have several implications. First, the ODRM can be an alternative risk measure to optimize the selection of mutual funds. Second, it proposes new seven optimized performance measures of Sharpe, Treynor, M-square, Jensen's alpha, IR, MSR, and FPI. These measures help fund managers to evaluate the performance of Malaysian mutual funds optimally. Third, No-Islamic funds have the upper performance than Islamic funds based on the results of optimized measures and robustness tests. Fourth, the majority of surveying funds over-perform the benchmark indexes. Practical implications – The research evidence reported by this study can be utilized as input in the process of decision making by small and average investors and portfolio managers who are seeking the possibility of participating in Malaysian stock market by mutual funds. Originality/value – This paper is the first study that optimizes the drawdown risk measure to evaluate the performance of Malaysian mutual funds and propose seven optimized measures, Sharpe, Treynor, M-Square, Jensen's alpha, IR, MSR, and FPI.

    KW - Drawdown risk measure

    KW - Financial risk

    KW - Malaysia

    KW - Mutual fund

    KW - Optimized drawdown risk measure

    KW - Performance evaluation

    KW - Risk management

    KW - Unit trusts

    UR - http://www.scopus.com/inward/record.url?scp=84875743332&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=84875743332&partnerID=8YFLogxK

    U2 - 10.1108/17590811211265957

    DO - 10.1108/17590811211265957

    M3 - Article

    VL - 3

    SP - 138

    EP - 162

    JO - Journal of Islamic Accounting and Business Research

    JF - Journal of Islamic Accounting and Business Research

    SN - 1759-0817

    IS - 2

    ER -