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What Explains Mutual Fund Performance Persistence? International EvidenceAneel KeswaniFaculty of Finance, Cass Business School, City University, London Miguel A. FerreiraNova School of Business and Economics; European Corporate Governance Institute (ECGI) Antonio F. MiguelInstituto Universitário de Lisboa (ISCTE - IUL), Business Research Unit (UNIDE-IUL), Portugal Sofia Brito RamosInstituto Superior de Ciências do Trabalho e da Empresa (ISCTE) - School of Business November 24, 2010 Midwest Finance Association 2012 Annual Meetings Paper Abstract: We study performance persistence and its determinants using a sample of equity mutual funds across 22 countries. Consistent with the predictions of the Berk and Green (2004) model, we find that flow-performance sensitivity decreases persistence in the presence of decreasing returns to scale. However, in the presence of increasing returns to scale, the strength of the flow reaction to past performance enhances persistence. Additionally, we find that fund industry competitiveness decreases persistence among winners and enhances persistence among losers. Our findings suggest that tests of performance persistence conducted without considering returns to scale or the level of competitiveness present in the industry being examined may lead to incorrect conclusions about the presence of managerial skill in that context.
Number of Pages in PDF File: 30 Keywords: Mutual Fund Persistence, Mutual Fund Flows, Economies of Scale, Competition JEL Classification: G15, G23 working papers seriesDate posted: December 6, 2010 ; Last revised: September 13, 2011Suggested CitationContact Information
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