An Analysis of the Unobserved Actions of Iranian Mutual Funds using Return Gap Criteria

Document Type : Research Paper

Authors

1 Assistant Prof. of Economics, Graduate School of Management and Economics, Sharif University of Technology, Tehran, Iran

2 M.Sc. Financial Economics, Graduate School of Management and Economics, Sharif University of Technology, Tehran, Iran

Abstract

Objective: This study aims at measuring the effect of added valued of unobserved actions of mutual funds.
Methods: Using Return Gap criteria– the difference between the return of hypothetical and actual return – the researchers examined the effect of indiscernible activities in mutual funds throughout seasonal reports.
Results: The results showed that unreported activities in mutual funds create just enough value to offset their costs.
Conclusion: We studied the unobserved actions of Iranian mutual funds among quarterly disclosure of holdings. We measured the effect of these unobserved actions using return gap – the difference between the return of a hypothetical constant portfolio matching the fund’s beginning of quarter and the fund’s actual return. The results indicated that these actions create just enough value to offset the costs associated with them; hence, the net effect on returns to fund investors is zero. We further documented that the funds are able to create more value through these activities in bull markets.

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References

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Financial Research Journal
Volume 20, Issue 1
2018
Pages 33-52

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