Multiple Discriminant Analysis Application in Financial Efficiency Prediction of Equity Mutual Fund in Thailand
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Abstract
This study was conducted in order to construct a financial efficiency prediction model and also to examine factors affecting the financial efficiency of equity mutual funds in Thailand. The financial efficiency prediction was constructed by adopting the Multiple Discriminant Analysis (MDA) of bankruptcy prediction model. The samples included 274 equity mutual funds, each with a maturity of 5 years, and the study was conducted from 2016 to 2020. The financial efficiency was determined by both the fund’s outperformance and underperformance compared with the SET TRI market index in three performance measurements: Sharpe, Treynor and Jensen’s alpha. Internal factors were composed of financial ratios and fund-specific factors, while external factors include macroeconomic factors. The internal factors consisted of financial ratios and fund-specific factors, while the external factor was the macroeconomic factor. The results from the study revealed that the MDA prediction model based on Jensen’s Alpha performed the highest accuracy with a one year prior to financial efficiency. It correctly predicted 95.4 percent. In addition, the total asset turnover and fund age statistically significantly affected financial efficiency in all measurements. The study results have confirmed the importance of financial ratios in the prediction model. Moreover, the financial efficiency prediction of equity mutual funds, which adopted the bankruptcy prediction rather than MDA is suggested for further study.
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