Performance and Characteristics of Mutual Fund Starts
The European Journal of Finance (2009, Vol.15)
37 Pages Posted: 11 Dec 2008 Last revised: 28 Jun 2014
Date Written: August 19, 2008
We study the performance and portfolio characteristics of 828 newly launched U.S. equity mutual funds over the time period 1991-2005. These fund starts initially earn, on average, higher excess returns and higher abnormal returns. Their risk-adjusted performance is also superior to existing funds. Furthermore, we provide evidence for short-term persistence among top performing fund starts, however, a substantial fraction of funds drop from the top to the bottom decile over two subsequent periods. We find that returns of fund starts indeed exhibit higher total and unsystematic risk. Portfolios of new funds are typically also less diversified in terms of number of stocks and industry concentration and are invested in smaller and less liquid stocks.
Keywords: Mutual funds, Fund starts; Performance evaluation; Performance persistence
JEL Classification: G11, G12, G23
Suggested Citation: Suggested Citation