Starting on the Wrong Foot: Seasonality in Mutual Fund Performance

49 Pages Posted: 10 Aug 2015 Last revised: 16 Dec 2017

See all articles by Stephen J. Brown

Stephen J. Brown

New York University - Stern School of Business

Juan M. Sotes-Paladino

Universidad de los Andes, Chile

George Jiaguo Wang

Lancaster University Management School; New York University - Stern School of Business

Chelsea Yaqiong Yao

Lancaster University - Lancaster University Management School; New York University (NYU) - Leonard N. Stern School of Business

Date Written: May 23, 2017

Abstract

We document a systematic seasonal component in the aggregate underperformance of active mutual funds. At the aggregate level, active funds underperform the market and other passive benchmarks only in the first month of a quarter. This intra-quarter performance seasonality holds across fund sizes and investment styles. The pattern is consistent with short-term stock return reversal effects along with aggregate window-dressing and, to a lesser extent, NAV-inflation practices around quarter-ends. We find marginal or no evidence of microstructure biases, fund investor flows, or cash distributions as sources of this seasonality. Our findings highlight new features of the active management underperformance puzzle.

Keywords: Mutual funds; performance evaluation; seasonality; benchmark index

JEL Classification: G23; G12; G11

Suggested Citation

Brown, Stephen J. and Sotes-Paladino, Juan M. and Wang, George Jiaguo and Yao, Yaqiong, Starting on the Wrong Foot: Seasonality in Mutual Fund Performance (May 23, 2017). Journal of Banking and Finance, Forthcoming, 29th Australasian Finance and Banking Conference 2016, Asian Finance Association (AsianFA) 2016 Conference, Available at SSRN: https://ssrn.com/abstract=2641690 or http://dx.doi.org/10.2139/ssrn.2641690

Stephen J. Brown (Contact Author)

New York University - Stern School of Business ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0306 (Phone)
212-995-4233 (Fax)

Juan M. Sotes-Paladino

Universidad de los Andes, Chile ( email )

Chile

George Jiaguo Wang

Lancaster University Management School ( email )

Department of Accounting and Finance
Lancaster University Management School
Lancaster, Lancashire LA1 4YX
United Kingdom
+44 1524 592 577 (Phone)

HOME PAGE: http://www.lancaster.ac.uk/lums/people/george-wang

New York University - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Yaqiong Yao

Lancaster University - Lancaster University Management School ( email )

Department of Accounting and Finance
Lancaster University Management School
Lancaster, LA1 4YX
United Kingdom

HOME PAGE: http://www.chelseayao.com

New York University (NYU) - Leonard N. Stern School of Business ( email )

Stern School of Business
44 West 4th Street
New York, NY NY 10012
United States

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