Performance of Mutual Funds Investing in Central and Eastern Europe

We investigate the performance of open-end mutual funds investing in equities of Central and Eastern European stock markets. The funds are grouped into two categories based on the location of their management companies: (1) funds managed from the GEE region, (2) funds managed from outside of the region. Our goal is to examine whether fund managers located and operating in the GEE region have any advantage compared to others, thus funds managed in the region can provide higher excess returns for the investors. Different market-equilibrium models (CAPM, Fama-French three-factor model, Carhart four-factor model and Pastor-Stambaugh five factor model) are applied to find the model (with regard to the number of variables and the proxies used as different variables) which best fit the process of returns realized by the mutual funds. Different market situations (increasing or decreasing general market prices in the region or worldwide in the capital markets) are also separated in order to examine whether different equilibrium models fit best these distinct market situations. Furthermore we build a model to capture the parameters explaining the cash in- and outflows to and from the funds.