Effectiveness of diversification in Closed End Mutual Fund Performance in Pakistan

Zafar, N., Chaudhary, M. A., & Javed, T.

Abstract:
This study examines the performance of mutual fund and relationship of the performance with the level of diversification. A sample of closed end Mutual Funds for the period 2005 – 09 has been studied. Three different techniques are used to measure performance of the mutual funds. Performance of the mutual funds is ranked by ascertaining risk adjusted returns derived by using Sharpe ratio, Treynor ratios and Jensen alpha using standard deviation and beta as a measure of risk. All three ratios reveal the same results that diversification leads to the achievement of high rate of return for a given level of risk. The two tier diversification of mutual funds led to the reduction of the risk thus Sharpe ratio and Treynor ratio shows highest level of return per unit of risk. Comparison of other funds reveals that there exists a direct relationship of diversification with the performance of mutual funds measured in terms of risk adjusted returns.

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  • Zafar, N., Chaudhary, M. A., & Javed, T. (2012). Effectiveness of diversification in Closed End Mutual Fund Performance in Pakistan. International Journal of Economic Sciences, I(1), 85–100.

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