Alternative and New Methods for Measuring Persistence in Fund Performance

25 Pages Posted: 5 May 2017

See all articles by Jason Wessels

Jason Wessels

PricewaterhouseCoopers

Emlyn James Flint

Legae Peresec; Department of Actuarial Science, University of Cape Town

Date Written: May 4, 2017

Abstract

This research adds to the current literature of measuring fund persistence by introducing two novel quantitative methods. Firstly, an existing method based on the Markov modelling of a fund’s Morningstar rating over time is examined. An improvement to this model is then suggested based on the replacement of the Morningstar ratings with the alpha-based percentile ranking from a factor model. Secondly, a novel method based on the use of survival analysis techniques is explored in the context of a Cox regression model and an accelerated failure time model. The effect of two fund-specific covariates on fund persistence are analysed under these survival models. The improved Markov model and survival models are applied to a set of South African equity mutual funds, with evidence of short-term persistence being found for top and bottom decile performers respectively under both modelling frameworks.

Keywords: mutual funds, fund performance persistence, Markov modelling, survival analysis, South African unit trusts

JEL Classification: G11, G24, C53, C6

Suggested Citation

Wessels, Jason and Flint, Emlyn James, Alternative and New Methods for Measuring Persistence in Fund Performance (May 4, 2017). Available at SSRN: https://ssrn.com/abstract=2962983 or http://dx.doi.org/10.2139/ssrn.2962983

Jason Wessels

PricewaterhouseCoopers ( email )

No Address Available
United States

Emlyn James Flint (Contact Author)

Legae Peresec ( email )

15 Cavendish Street
Claremont
Cape Town, Western Cape 7700
South Africa
27117227556 (Phone)

HOME PAGE: http://www.legaeperesec.co.za

Department of Actuarial Science, University of Cape Town ( email )

Actuarial Science Section, University of Cape Town
Private Bag X3, Rondebosch
Cape Town, Western Cape 7701
South Africa
+27 21 650 2475 (Phone)

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