Regime-Switching Determinants of Mutual Fund Performance in South Africa

Richard Apau, Peter Moores-Pitt and Paul-Francois Muzindutsi
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Peter Moores-Pitt: School of Accounting, Economics and Finance, University of KwaZulu-Natal, Bag X 5400, Durban 4000, South Africa
Paul-Francois Muzindutsi: School of Accounting, Economics and Finance, University of KwaZulu-Natal, Bag X 5400, Durban 4000, South Africa

Economies, 2021, vol. 9, issue 4, 1-20

Abstract: This study assesses the effect of fund-level and systemic factors on the performance of mutual funds in the context of changing market conditions. A Markov regime-switching model is used to analyze the performance of 33 South African equity mutual funds from 2006 to 2019. From the results, fund flow and fund size exert more predictive influences on performance in the bearish state of the market than in the bullish state. Fund age, fund risk, and market risk were found to be the most significant factors driving the performance of active portfolios under time-varying conditions of the market. These variables exert more influence on fund performance under bearish conditions than under bullish conditions, emphasizing the flight-to-liquidity assets phenomenon and risk-aversion behavior of fund contributors during unstable conditions of the market. Consequently, fund managers need to maintain adequate asset bases while implementing policies that minimize dispersions in fund returns to engender persistence in performance. This study provides novel perspectives on how the determinants of fund performance change with market conditions as portrayed by the adaptive market hypothesis (AMH).

Keywords: fund performance; efficient market hypothesis; adaptive market hypothesis; behavioral finance; market conditions; Markov switching model (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jecomi:v:9:y:2021:i:4:p:161-:d:662523

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