Starting on the Wrong Foot: Seasonality in Mutual Fund Performance
49 Pages Posted: 10 Aug 2015 Last revised: 16 Dec 2017
Date Written: May 23, 2017
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: Suggested Citation