Active Open-end Equity Funds Performance: An Empirical Decomposition of Excess Returns in Emerging Markets

Carolina Vallese & Massimo Zuffellato

Student thesis: Master thesis


For the last decade, emerging markets have factored over two-thirds of global GDP growth. As a result, much debate surrounding equity markets has focused on the performance of active over passive investing in the face of near market efficiency. This thesis seeks to explain the excess returns of active open-end funds over the period 2006-2021 and empirically determine whether, given lower market efficiency and thus greater opportunities for arbitrage, actively managed funds investing in emerging markets systematically generate abnormal returns. Using data from the Eikon database on 37 active open-end funds investing in emerging markets, we compare the Fama-French Three-Factors model to the Carhart Four-Factors model. The regression analysis finds that the latter has the highest explanatory power and, before tax, 10 actively managed funds generate a significant alpha. The thesis also seeks to investigate and decompose what areas of stock selection explain the superior active open-end fund returns. The results indicate that market conditions, investment style, management skills, and management fees provide insightful information for investors.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2021
Number of pages145