Is There Performance Persistence After All? International Evidence
Posted: 6 Dec 2010 Last revised: 2 Jun 2019
Date Written: April 27, 2017
The existing U.S. based literature and the Berk and Green (2004) model suggest that performance persistence and managerial skill are limited. We find significant persistence in most fund industries in a sample of open-end domestic equity mutual funds from 27 countries. Two factors explain why persistence in fund management is pervasive globally. First, flows into funds do not always decrease persistence as most countries do not have decreasing returns to scale in fund management. Second, the economic magnitude of the effect of flows on persistence is small even in the United States, where fund industry conditions most closely resemble the Berk and Green assumptions. This explains why persistence is present in most fund industries with even decreasing returns to scale. We find that differences in mutual fund industry development are responsible for returns to scale differences across countries.
Keywords: Mutual fund persistence, Mutual fund flows, Returns to scale, Berk and Green model
JEL Classification: G15, G23
Suggested Citation: Suggested Citation