A Review of Behavioural and Management Effects in Mutual Fund Performance

Forthcoming, International Review of Financial Analysis

43 Pages Posted: 29 Jan 2016

See all articles by Keith Cuthbertson

Keith Cuthbertson

City University London - Sir John Cass Business School

Dirk Nitzsche

City University London - Sir John Cass Business School

Niall O'Sullivan

University College Cork

Date Written: January 28, 2016

Abstract

This paper surveys and critically evaluates the literature on the role of management effects and fund characteristics in mutual fund performance. First, a brief overview of performance measures is provided. Second, empirical findings on the predictive power of fund characteristics in explaining future returns are discussed. Third, the paper reviews the literature on fund manager behavioural biases and the impact these have on risk taking and returns. Finally, the impact of organizational structure, governance and strategy on both fund risk taking and future performance is examined. While a number of surveys on mutual fund performance are available, these have not focused on the role of manager behavioural biases, manager characteristics and fund management strategic behavior on fund performance and risk taking. This review is an attempt to fill this gap. Empirical results indicate that finding successful funds ex-ante is extremely difficult, if not impossible. In contrast, there is strong evidence that poor performance persists for many of the prior “loser fractile” portfolios of funds. A number of manager behavioural biases are prevalent in the mutual fund industry and they generally detract from returns.

Keywords: Mutual fund performance, fund characteristics, manager characteristics, manager behavior biases

JEL Classification: G11, G12, G14

Suggested Citation

Cuthbertson, Keith and Nitzsche, Dirk and O'Sullivan, Niall, A Review of Behavioural and Management Effects in Mutual Fund Performance (January 28, 2016). Forthcoming, International Review of Financial Analysis, Available at SSRN: https://ssrn.com/abstract=2723890

Keith Cuthbertson

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Dirk Nitzsche

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Niall O'Sullivan (Contact Author)

University College Cork ( email )

Department of Economics
University College Cork
Cork, n/a
Ireland

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