Soo Wah Low

Malaysian unit trust funds’ performance during up and down market conditions: A comparison of market benchmark

Purpose - The paper seeks to examine whether selectivity and timing performance of fund manager is sensitive to the choice of market benchmarks. The two benchmarks used are the Kuala Lumpur Composite Index (KLCI) and the Exchange Main Board All-Share (EMAS) Index. Design/methodology/approach - The paper seeks to employed Jensens model to estimate the overall fund performance and Henriksson and Mertons model to separate the fund managers investment performance into the selectivity and market-timing components. Findings - The findings indicate that, on average, the funds display negative overall performance with either the KLCI or the EMAS Index. In addition, there is little variation in the managers market-timing and selectivity performance across alternative market benchmarks. It is also reported that a managers poor timing ability contributes significantly to the funds negative overall performance. Research limitations/implications - The paper employed just two market benchmarks. Inclusion of more market benchmarks in future research may provide further support for the existing findings. Practical implications - Regardless of the market benchmarks used, the results imply that fund managers should seriously reassess their market timing efforts, given that their predictions are very often in the wrong direction than in the right direction. Such findings suggest that no economic benefit accrues to the average fund manager involved in market-timing activities. Originality/value - The paper provides first evidence on the sensitivity of a fund managers separate investment components (timing and selectivity) to different specification of the market benchmarks.

The expectation hypothesis in emerging financial markets: the case of Malaysia

This article deals with the expectation hypothesis of the term structure of interest rates. It is argued that the rapid progress and financial market liberalization that is occurring in emerging financial markets could provide additional evidence for testing the expectation hypothesis. This article employs data from the Malaysian government securities market which represents one of the examples of an emerging financial market. Cointegration and error correction analyses show significant empirical validity for the expectation hypothesis. The long- and short-term interest rates are shown to be cointegrated and subject to a long-run equilibrium path. In addition to shedding some light on the experience of emerging financial market, this article explicitly identifies the process of adjustment towards the long run equilibrium. For the long-run, the results are in favour of the long-to-short version of expectation hypothesis with longer-term interest rates playing a greater role as equilibrium attractor. However, in the short run causal impact runs from short- to long-term interest rates. The empirical findings of the article generally support the proposition of expectation hypothesis.

International Evidence on the Link between Quality of Governance and Stock Market Performance

Abstract This paper examines the link between country-level governance and global stock market returns. We find a negative relation between governance quality and equity return. Countries with low governance scores, on average, have higher equity returns than those with high governance scores after controlling for global risk factors known to influence international equity returns. This implies that investors associate low governance quality with increased risk and thus demand higher risk premium. We find that the quality of governance as measured by Political Stability and Absence of Violence is key governance dimension affecting international equity returns, suggesting that heightened investor concerns over political risks have profound impact on equity markets. Interestingly, we find no evidence that variation in equity returns is affected by the governance indicator representing Voice and Accountability. The findings of this study provide important policy implications.

The link between bank monitoring and corporate dividend policy: The case of dividend omissions

Abstract This study investigates whether bank monitoring influences investor response to a borrowing firms decision to omit its dividend payments. We establish a new link between the theories of banking and dividend policy in an examination of how bank monitoring and firm dividend signals complement one another to resolve information asymmetries. Results indicate that, for small firms, investors interpret the dividend decision as a function of bank monitoring and the dividend signals taken together. Also reported are the results of tests examining the differences between the monitoring effects of banks versus public and private non-bank lenders.

The price linkages between Malaysian unit trust funds and the stock market: Short run and long run interrelationships

Purpose - The primary objective of the paper is to examine the short and long run price linkages between Malaysian unit trust funds and the stock market index as proxied by the Kuala Lumpur composite index (KLCI) over the period 1996-2000. Design/methodology/approach - Cointegration analyses are used to identify the long run relationship between unit trust funds and the stock market index while Granger causality tests are used to measure the short run price linkages. Findings - Cointegration results show that the long run pricing performance of the unit trust funds differs significantly from that of the KLCI. Interestingly, the findings also reveal that two index funds are found not to be cointegrated with the stock market index. In the short run, one-way Granger causality test shows that changes in the KLCI Granger causes changes in the unit trust funds. This suggests that fund managers are responding to the past changes in the stock market index over the short run. Research limitations/implications - The findings of non-cointegration between passively managed funds and the KLCI are restricted to only two index funds in the sample among other actively managed funds. Since there were not enough index funds available over the study period, future research should include more index funds in the analysis. Practical implications - In the short run, investors may gather information on the changes in their portfolio composition by observing the movement in the KLCI. Originality/value - The paper represents the first evidence on the pricing relationships between unit trust funds and the local stock market index and the findings are important to investors in terms of their investment strategies.

Does the quality of governance matter for equity market risk? Evidence from emerging and developed equity markets

This paper examines the relation between country-level governance and cross-country differences in equity market risk by employing panel data regressions. For emerging markets, we find consistent evidence that governance quality of various dimensions is negatively related to equity market risk. On the contrary, for developed markets, the results show that there is generally little or no relation between governance quality and equity market risk. The results provide practical implication to policy makers of emerging markets by highlighting the relevant governance dimensions that constitute important drivers of stock market risk. The findings have academic implication in the context of equilibrium pricing of stock market in emerging market.

Refinements to the Sharpe Ratio – Evidence from Malaysian Equity Funds

Abstract We apply M-squared measure to evaluate the performance of Malaysian equity funds. Specifically, we show how financial leverage can be applied to increase the returns or to reduce the risk exposures of funds. Several alternative refinements to the original Sharpe ratio are also employed to evaluate the funds during periods of negative excess returns. We find that modified versions of Sharpe measure generally lead to similar performance rankings as the original Sharpe ratio. Our findings imply that while Sharpe ratio has experienced several methodological improvements, its basic underlying concept remains remarkably intact.