Abstract
[Display omitted]
► Conditional measures account for time-varying risks, while the unconditional Jensen alphas do not. ► The advantage of the multivariate GARCH approach over the bivariate GARCH approach lies in the fact that it takes into account multiple risk factors. ► The Jensen alphas are estimated more precisely in the multivariate GARCH model than in the other approaches. ► Mutual fund alphas in Tunisia are on average positive and statistically significant only when we implement the GARCH method. ► The Tunisian capital market presents strong investment opportunities for sophisticated investors such as mutual funds.
This article investigates mutual fund performance in the Tunisian capital market using conditional multifactor models. In the mutual fund literature, the traditional approach to capture conditionality is the use of predetermined instruments. This study proposes a multivariate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) approach to compute conditional measures. Overall, we find evidence of persistence in mutual fund performance only when we implement the multivariate GARCH method. This result is due to the fact that the Jensen alphas are estimated more precisely in the multivariate GARCH model than in the other approaches. These results indicate that the Tunisian capital market presents strong investment opportunities for sophisticated investors such as mutual funds.