Performance Persistence in Institutional Investment Management

46 Pages Posted: 14 Jun 2006  

Jeffrey A. Busse

Emory University - Department of Finance

Amit Goyal

University of Lausanne; Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

Sunil Wahal

Arizona State University (ASU) - Finance Department

Date Written: July 2006

Abstract

Using new, survivorship-bias free data, we examine performance persistence in 6,260 institutional portfolios managed by 1,475 investment management firms between 1991 and 2004. Unlike retail mutual funds, persistence in winner domestic equity portfolios is significant and economically large for up to one year. Loser portfolios, conversely, do not persist. International portfolios exhibit similar patterns, and fixed income portfolios persist up to three years. We find that better-performing portfolios offer performance-based fees and most-favored-nation clauses more often, but also charge higher fees. The magnitude of fees is insufficient to eliminate excess returns. Top performers draw an influx of assets from plan sponsors, and in the year following such inflows, alphas sharply decline.

Suggested Citation

Busse, Jeffrey A. and Goyal, Amit and Wahal, Sunil, Performance Persistence in Institutional Investment Management (July 2006). EFA 2006 Zurich Meetings Paper. Available at SSRN: https://ssrn.com/abstract=890319 or http://dx.doi.org/10.2139/ssrn.890319

Jeffrey A. Busse

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-0160 (Phone)
404-727-5238 (Fax)

Amit Goyal (Contact Author)

University of Lausanne ( email )

Lausanne, Vaud CH-1015
Switzerland

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Sunil Wahal

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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