Short-term Persistence in U.S. Equity Mutual Fund Performance PDF Download

Author: Jinlin Li
Publisher:
ISBN:
Category : Investment analysis
Languages : en
Pages : 62

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Author:
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Category :
Languages : en
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In this paper, I analyze long-term performance persistence for a sample of 6525 US equity mutual funds between 1970 and 2013. I test for evidence of five-year performance persistence by using a non-parametric method involving the construction of contingency tables. I also apply a parametric cross-sectional regression of fund performance on past fund performance. I conduct the tests with four different performance measures, namely continuous returns, Jensen's alphas, Four Factor alphas and Sharpe Ratios. I find evidence for performance persistence across all performance measures and with both methodologies. Four Factor alphas show the most significant evidence. The observed persistence is to a great extent driven by funds that consistently perform below or equal to the median of their peers during the analyzed time periods. Performance persistence is especially pronounced during periods where the market shows a sustained upward or downward trend. The results are robust for longer time horizons up to ten years. I find reversals in performance to occur especially when the testing period is to a large extent characterized by a sharp negative market movement, such as the aftermath of the technology bubble in the early years of the 21st century. Past performance over longer time periods can therefore be considered for the evaluation of a long-term investment in a mutual fund, but should not be used as a standalone criterion.

Author: Evangelos Benos
Publisher:
ISBN:
Category :
Languages : en
Pages : 31

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Using daily return data from 448 actively managed mutual funds over a recent 9-year period, we look for persistence, over two consecutive quarters, in the ability of funds to select individual stocks and time the market. That is, we decompose overall fund performance into excess returns resulting from stock selection and timing abilities and we separately test for persistence in each ability. We find persistence in the ability to time the market only among well performing funds and in the ability to select stocks only among the very best and worst performers. The existing literature patterns appear only when funds are ranked by their overall performance, which includes stock selection, market timing and fees. With respect to overall performance, there is persistence among most poorly performing and only the top well performing funds. Furthermore, the profitability of a winner-picking strategy depends on the rebalancing frequency and potentially the size of the investment. Small investors cannot profit, whereas large investors can take advantage of the class A share fee structure and realize positive abnormal returns by annually rebalancing their portfolios.

Author: Marno Verbeek
Publisher:
ISBN:
Category :
Languages : en
Pages : 40

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Using monthly return data of more than 6,400 US equity mutual funds we investigate short-run performance persistence over the period 1984-2003. We sort funds into rank portfolios based on past performance, and evaluate the portfolios' out-of-sample performance. To cope with short ranking periods, we employ an empirical Bayes approach to measure past performance more efficiently. Our main finding is that when funds are sorted into decile portfolios based on 12-month ranking periods, the top decile of funds earns a statistically significant, abnormal return of 0.26 percent per month. This effect persists beyond load fees, and is mainly concentrated in relatively young, small cap/growth funds.

Author: Javier Vidal-García
Publisher:
ISBN:
Category :
Languages : en
Pages : 39

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This paper examines the short term persistence in performance of equity mutual funds around the world between 1990 and 2013. Using a large survivorship bias-free sample for 35 countries, we document strong evidence of persistence in daily mutual fund returns over quarterly measurement periods. We rank countries by abnormal return and estimate the performance of each country the following quarter. We find statistically and economically significant performance persistence, although persistence is much more pronounced for the top and bottom countries. The post-ranking abnormal return disappears when performance is examined over longer time periods. Thus, our results confirm that superior performance is a short-lived phenomenon.

Author: Peter Lückoff
Publisher: Springer Science & Business Media
ISBN: 3834927805
Category : Business & Economics
Languages : en
Pages : 604

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Peter Lückoff investigates why fund flows and manager changes act as equilibrium mechanisms and drive the performance of both previously outperforming and previously underperforming funds back to average levels.

Author: s P. B. Bollen
Publisher:
ISBN:
Category :
Languages : en
Pages :

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We estimate parameters of standard stock selection and market timing models using daily mutual fund returns and quarterly measurement periods. We then rank funds quarterly by abnormal return and measure the performance of each decile the following quarter. The average abnormal return of the top decile in the post-ranking quarter is 39 basis points. The post-ranking abnormal return disappears when funds are evaluated over longer periods. These results suggest that superior performance is a short-lived phenomenon that is observable only when funds are evaluated several times a year.

Author: Roy Henriksson
Publisher:
ISBN: 9781021216878
Category : Business & Economics
Languages : en
Pages : 0

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Author: Weihao Han
Publisher:
ISBN:
Category :
Languages : en
Pages : 65

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Mutual funds are becoming an important investment vehicle in economy in recent times. The question over whether the mutual funds could outperform the stock market, and whether the persistence of their performance exist is a highly debated issue. Most studies seek to measure the performance of mutual funds and their long term performance in advanced markets such as the US and UK markets through various methods. However, there are only a few relative studies that focus on emerging markets such as Chinese mutual fund market. This dissertation aims to examine the performance and the persistence of Chinese equity mutual funds from 2007 to 2017 with CAPM and Carhart four-factor model over both long and short term periods. The outcomes of this dissertation suggest that mutual funds could outperform the stock market, and reverse persistence exists in short-term intervals as compared with the US market, yet the reverse persistence might be eliminated in the long-term since the persistence becomes normal but slightly significant. The reverse persistence is such a rare and interesting phenomenon around the world financial market. The probable reason for it in the Chinese market is that it is dominated by individual investors, and the disposition effect of individual investors is amplified which could highly influence the mutual funds. Hence, as China being the second largest economy in the world and the financial market being dominated by individual investors, the result of this research could provide some implications for both investors and scholars who are investigating the emerging market.

Author: Andrew L. Detzel
Publisher:
ISBN:
Category :
Languages : en
Pages :

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To consistently earn positive alpha, active fund managers must have access to mispriced stocks. We show that mispricing varies by equity class in such a way that greater mispricing occurs in smaller-cap and more value-oriented stocks, providing opportunity for managers in these classes. Accordingly, we find the greatest evidence that top-performing mutual fund managers continue to earn positive alpha in smaller-cap and more value-oriented classes when investigating quarterly performance persistence by equity class. Conversely, large cap funds show no evidence of persistence in superior performance. In contrast to the patterns of persistence in superior performance, relative performance persists in all equity classes.