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Korean Journal of Financial Studies 2013;42(2):421-460.
Published online April 30, 2013.
A Performance Evaluation of Stock Mutual Funds by No Arbitrage and No Good Deal Bounds
Bong Joon Kim, Hank Yung Lee
무차익 거래를 이용한 주식형 펀드의 성과 평가
김봉준, 이한경
We evaluated the performance of domestic stock mutual funds using no arbitrage and no good deal bounds. This method has the advantage of no model specification error because the stochastic discount factors for evaluating fund performances are estimated directly from Euler equations that consist of reference assets. This makes it possible to derive more reliable risk adjusted excess returns of funds. Specifically, we estimated fund performances using stochastic discount factors that exist infinitely under incomplete market and derived their upper and lower bounds. We call them no arbitrage bounds of target fund. And we also narrowed the range of no arbitrage performance bounds by adding the restriction of maximum Sharpe ratio to Euler equation system. We call it no good deal bounds of target fund. Using no arbitrage and no good deal bounds we evaluated relative performance of domestic stock mutual funds according to fund evaluation criteria that Ahn et al. (2009b) suggested. The empirical results are summarized as follows. The first is that from no arbitrage bounds we found that most funds showed both positive upper bounds and negative lower bounds. This implies that fund performance can be different according to diverse preferences of representatives under an incomplete market. The second is that unlike no arbitrage bounds the range of no good deal bounds was about 1% per annually. This implies that universally congruent fund evaluation is possible by introducing the assumption that there exists no good deal opportunity that exceeds the maximum Sharpe ratio of reference assets. The third is that no good deal bounds showed high correlations with fund performances based on parametric models like CAPM. This implies that parametric capital asset pricing models are related with no good deal opportunity as well as no arbitrage opportunity in the market. Therefore, we concluded that no good deal bounds are more valid than no arbitrage bounds as non-parametric fund evaluation criteria.
Key Words: 무차익거래원칙,비모수적 접근방법,오일러등식,펀드성과평가,확률할인요소,Euler Equation,Fund Performance Evaluation,No Arbitrage Principle,No Good Deal Opportunity,Stochastic Discount Factor

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