Mutual Fund Industry Selection and Persistence

The Review of Asset Pricing Studies, Forthcoming

51 Pages Posted: 9 Dec 2007 Last revised: 14 Nov 2013

See all articles by Jeffrey A. Busse

Jeffrey A. Busse

Emory University - Department of Finance

Qing Tong

Shanghai LiLi Technology Co.,Ltd.

Date Written: May 1, 2012

Abstract

We analyze mutual fund industry selectivity — the performance of a fund’s industry allocation relative to the market. We find that industry selection accounts for a full third of fund performance based on two-digit standard industrial classification (SIC) codes, with the remaining attributable to the performance of individual stocks relative to their own industries. More importantly, we find that industry-selection skill drives persistence in relative performance. Unlike stock-selection ability, industry selectivity is not eroded by increasing fund assets. Our results suggest that accounting for a manager’s ability to pick outperforming industries provides information beyond standard performance measures that can enhance a fund investor’s future performance.

Keywords: mutual funds, persistence, industry selection

JEL Classification: G11

Suggested Citation

Busse, Jeffrey A. and Tong, Qing, Mutual Fund Industry Selection and Persistence (May 1, 2012). The Review of Asset Pricing Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1065701 or http://dx.doi.org/10.2139/ssrn.1065701

Jeffrey A. Busse (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-0160 (Phone)
404-727-5238 (Fax)

Qing Tong

Shanghai LiLi Technology Co.,Ltd. ( email )

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