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MUTUAL FUND INDUSTRY IN DEVELOPED AND DEVELOPING ECONOMIES OF EUROPE: EVIDENCE ON INVESTMENT AND DIVERSIFICATION OPPORTUNITIES IN GERMANY AND RUSSIA
Abstract
Recent financial crisis and subsequent economic recession force a constantly increasing number of investors from countries with developed economies and regulatory systems, to look for new investment opportunities and diversification benefits through the globe. The fundamental principle of classical portfolio theory states that mature capital markets of developed economies are nearly efficient thus offering no extra returns and low possibilities for portfolio diversification. In this context developing economies with their emerging capital markets can offer substantial investment opportunities and diversification benefits for investors from their developed counterparts. Such attitude naturally led to introduction of a wide range of relevant studies, which are structured mainly upon evidence from the United States and Asia-Pacific asset management. Meanwhile termination of transition processes in economies from the Central and Eastern Europe along with other features was marked by establishment and rapid development of local fund industries. From this perspective, the paper aims to reevaluate risk-adjusted performance and diversification opportunities of German and Russia mutual fund industries using a sample of total monthly returns for 2000 open-end equity, fixed income and balanced funds for a time span from 2000 to 2013. Risk-adjusted performance will be measured by means of unconditional and conditional CAPM, given by Sharpe and Treynor ratios, Jensen's alpha and M2, while forexamination of diversification opportunities correlation matrix will be employed. The paper contributes existing studies with a useful insight into performance and diversification opportunities offered by emerging markets on the basis of obtained evidence for Europe-domiciled funds, having among themselves funds from well developed economies of the European Union and funds from the developing, middle-income economies of the Commonwealth of Independent States.
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