Active and passive fund management. A look at fund management performance against the Ghana stock exchange (GSE) composite index

Thesis (M.A.) from the year 2015 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: A, University of Cumbria (Robert Kennedy College), language: English, abstract: The popularity of funds that replicate a market performance continue to surge and several literatures have documented the superiority of index funds outperforming their active fund management counterparts. Most of these studies have been based on data from developed, emerging and frontier economies including the USA, Britain, France, Japan, India and many other countries. This study joins the debate by analysing Ghana specific data to measure the performance of Ghanaian fund managers from 2006 to 2013.

This is the first of such analysis in the Ghanaian context. Using aggregate average returns, Sharpe ratio and Jensen¿s Alpha based on the Capital Asset Pricing Module (CAPM) as the key performance indices, the study finds that fund managers in Ghana by aggregation do not provide superior returns using the GSE composite index as the market return benchmark and that fund managers on average have underperformed the market during the period of study. The aggregate of their performance further worsen on a risk adjusted returns after factoring in fund managers cost.

This notwithstanding, some fund managers on a risk adjusted average return basis outperformed the market return albeit funds with an asset allocation portfolio of not less than 60% equity. Although the Ghanaian economy exhibit signs of a frontier market, the research observed fund managers in Ghana do not exhibit market timing skills and stock selection abilities that would have made them outperform the market. Evidence of superior performance persistence is also not noticeable but consistency in underperformance is observed.

The outcome of this work indicate superior outperformance by replicating the GSE composite index as compared to active fund management and adds to the existing works that suggest the failure of active fund management to outperform their benchmark over a continuous period.