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Time-Varying Predictability in Mutual Fund Returns

43 Pages Posted: 21 Mar 2009 Last revised: 14 Jan 2012

Vincent Glode

University of Pennsylvania - The Wharton School

Burton Hollifield

Carnegie Mellon University - David A. Tepper School of Business

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; National Bureau of Economic Research (NBER)

Shimon Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management; IDC Herzliya - Arison School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 13, 2012

Abstract

We provide novel evidence that mutual fund returns are predictable after periods of high market returns but not after periods of low market returns. The asymmetric conditional predictability in relative performance cannot be fully explained by time-varying differences in transaction costs, in style exposures, or in survival probabilities of funds. Performance predictability is more pronounced for funds catering to retail investors than for funds catering to institutional investors, suggesting that unsophisticated investors make systematic mistakes in their capital allocation decisions.

Keywords: Mutual Funds, Flows, Investor Rationality, Market Conditions

JEL Classification: G23, G11, G14

Suggested Citation

Glode, Vincent and Hollifield, Burton and Kacperczyk, Marcin T. and Kogan, Shimon, Time-Varying Predictability in Mutual Fund Returns (January 13, 2012). Available at SSRN: https://ssrn.com/abstract=1364351 or http://dx.doi.org/10.2139/ssrn.1364351

Vincent Glode

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Burton Hollifield (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
(412) 268-6505 (Phone)
(412) 268-6837 (Fax)

Marcin Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Shimon Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

IDC Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel

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