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Starting on the Wrong Foot: Seasonality in Mutual Fund Performance

49 Pages Posted: 10 Aug 2015 Last revised: 5 Jun 2017

Stephen J. Brown

New York University - Stern School of Business

Juan M. Sotes-Paladino

University of Melbourne - Department of Finance

George Jiaguo Wang

Manchester Business School; New York University - Stern School of Business

Yaqiong (Chelsea) Yao

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 (Chelsea), Starting on the Wrong Foot: Seasonality in Mutual Fund Performance (May 23, 2017). Asian Finance Association (AsianFA) 2016 Conference; 29th Australasian Finance and Banking Conference 2016. 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

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia
+61 3 9035 9827 (Phone)
+61 3834 6914 (Fax)

George Jiaguo Wang

Manchester Business School

Crawford House
Oxford Road
Manchester, M15 6PB
United Kingdom
+447516389968 (Phone)

HOME PAGE: http://www.mbs.ac.uk/research/people/profiles/gwang

New York University - Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

Yaqiong (Chelsea) Yao

Lancaster University - Management School ( email )

Department of Accounting and Finance
Lancaster University Management School
Lancaster, LA1 4YX
United Kingdom
+44 (0)1524 510731 (Phone)

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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