peers who do not survive as solo managers beyond three years significantly

Peers who do not survive as solo managers beyond

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peers who do not survive as solo managers beyond three years significantly underperform the market. (Porter & Triffts 2012) 2.3.5 Fund Age Age of a mutual fund could play a role in deciding performance since younger funds may face significant higher costs in their startup period. This is due to marketing costs but also that the initial cash flows will place a greater burden o n the fund’s transaction costs. There is also evidence showing that return of new mutual funds may be affected by an investment learning period (Gregory et al , 1997). One of the reasons for underperformance of younger funds according to Bauer et al (2002) is their exposure to higher market risk since they are invested in fewer stocks. There is a relationship between fund age and fund size; young funds tend to be smaller than older ones, which make the young funds’ returns and ratings more vulnerable for manipulation. The smaller the fund, the more a handful of fortunate stock picks can buoy the performance of the entire fund. Moreover, because young mutual funds are typically
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20 smaller, fund families may be able to afford to waive some of the expenses (Adkisson & Fraser, 2003). 2.4 Empirical Review Gaumnitz (1970) evaluated the portfolio return variability and market price. He concluded that portfolio managers are better off maximising the portfolio market prize to maximise returns rather than try to minimise its variability. The returns on a portfolio vary more significantly than the portfolio market price. Hence, the return measures dominated the risk measures in calculation of the market price of risk than consideration of the variability. Black, Jensen and Scholes (1972) improved the precision of the CAPM in estimating the beta by working with portfolios rather than individual assets. The evaluation was not purely for the pricing of a single asset but the pricing of a portfolio of assets. Jensen (1968) highlighted the fact that a time-series regression test would prove the accuracy of the capital asset pricing model. His evaluation considered the CAPM parameters and their estimation concluding that a regression analysis would provide the estimate which would be used in the model. Actual returns would then be compared with forecasts generated from the model. Significance test proved that the beta was significant in explaining changes in explaining changes in expected returns and estimates were within close range to the actual returns earned. Brigham, Gapenski & Davies (1999) found that the lower the coefficient of variation the lower the risk per unit of return. Risk can be analysed using the coefficient of variation. This is a relative measure of dispersion which measures the risk per unit of return. It is used
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21 to compare assets that have different risk return characteristics. Elsas, El-shaer, and Theissen (2003) evaluated the beta-return relationship in the German stock exchange.
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