Active versus Passive Performance: An Empirical Study of Equity Mutual Funds in Saudi Arabia

Abstract

Using a survivorship bias-free approach, this study examined the mutual fund industry in Saudi Arabia by analysing both active and passive funds from 2013 to 2022. This was achieved using the Carhart (1997) Four-Factor model and Jensen's Alpha. Contrary to expectations, this analysis revealed that Saudi mutual funds do not consistently outperform market benchmarks on a risk-adjusted basis, even before accounting for management fees. This finding diverges from established research in more mature markets, highlighting the unique dynamics within the Saudi context that have been shaped by recent economic reforms and global events. This underscores the necessity for region-specific analysis of mutual fund performance, based on the inapplicability of trends in developed markets to emerging markets such as Saudi Arabia.