ABSTRACT

The purpose of this study is to obtain the estimation model for measuring performance of stock mutual funds based on ARCH/GARCH model adopted from Treynor–Mazuy’s model. Treynor–Mazuy’s model is a performance measure model that considers the abilities of fund managers in terms of market timing ability and stock selection ability. Market return included into the model indicated that the model contains the problem of heteroscedasticity that can happen on stock prices because of their fluctuations. Heteroscedasticity problem may lead to biased estimation of model, and thus ARCH/GARCH models are required to solve the problem. The research uses net asset value (NAV) data of the twenty nine mutual funds that effectively operated during the period January 2008–June 2015. The research finding states that the estimation value obtained Treynor–Mazuy’s model indicated bias due to heteroscedasticity problem by using time series data in OLS model. The volatility model that can be used to solve the problems is GARCH (2,2), which establishes a model with an accurate estimation result.

Keywords: ARCH/GARCH, heteroscedasticity, volatility, Treynor-Mazuy’s model