The Case For Emerging Market Funds

Abstract

This study investigates the performance of open-end actively managed emerging market mutual funds during the time period 1999 to 2005. Our analysis is cross-sectional and time series across a wide range of emerging markets. Previous research includes performance studies of international mutual funds and emerging market funds, but none of the previous studies were as broad nor as specific as the current study. Monthly fund returns are compared to three indices (emerging markets, MSCI, and S&P 500 Index), using annualized returns, Sharpe ratio and Treynor ratio. The results show that the emerging market funds outperform the MSCI Index and the S&P 500 Index, but not the emerging market index. During the study period, an investor would have benefited by either investing in emerging market funds or the emerging market index. There is also a negative relationship between emerging market fund returns and turnover, and a positive relationship between fund returns and size.