50 Pages Posted: 7 Nov 2008
Date Written: October 1998
Recent empirical evidence has suggested that the Japanese mutual fund industry has under-performed dramatically over the past two decades. Conjectured reasons for underperformance range from tax-dilution effects to high fees, high turnover and poor asset management. In this paper, we show that this underperformance is largely due to tax-dilution effects, and not necessarily to poor management. Using a broad database of funds which includes investment trusts closed to new investment, we show that once an instrument for the time-varying tax dilution exposure is included in a factor model, there is little evidence of poor risk-adjusted performance. A style analysis of the industry demonstrates that managers appear to pursue tax-driven dynamic strategies.
Suggested Citation: Suggested Citation
Brown, Stephen J. and Goetzmann, William N. and Hiraki, Takato and Otsuki, Toshiyuki and Shiraishi, Noriyoshi, The Japanese Open-End Fund Puzzle (October 1998). NYU Working Paper No. FIN-98-012. Available at SSRN: https://ssrn.com/abstract=1296407