Abstract
This paper assesses the performance of 355 actively managed Japanese Equity Mutual Funds between April 2011 and April 2016. The equal weight portfolio and Jensen’s alpha measures of active management provide strong evidence that Japanese Mutual Funds fail to outperform the benchmark four-factor capital asset pricing model. When it comes to market timing, the Treynor and Mazuy measure shows that 33 funds have significant positive market timing ability which is largely offset by 31 funds with significant negative timing ability. To ensure the statistical inference is robust to the non-normality found in 33 funds we employ Fama and French’s cross-sectional bootstrap. The results show that a large proportion of funds fail to outperform a hypothetical world with no skill. On the persistence of skill we find that there is stronger persistence for poor performing funds than for strong performing funds.
Highlights
Mutual funds allow investors to benefit from diversified portfolios by grouping investments together and these investment groupings typically differ according to investment style
This paper contributes to the literature by using popular performance measures to infer the active managers’ skill level in Japan2 by analyzing Japanese mutual fund performance over the period April 2011 and April 2016, This paper considers gross returns that include trading costs, management fees, and expenses, the tests of skill enables us to determine if fund managers had sufficient skill to beat passive, diversified benchmarks
2 Some research has been done into Japanese mutual fund performance, notably Cai et al (1997), but such papers focus on returns from earlier periods and do not use some of the performance tests in this paper
Summary
Mutual funds allow investors to benefit from diversified portfolios by grouping investments together and these investment groupings typically differ according to investment style. This paper contributes to the literature by using popular performance measures to infer the active managers’ skill level in Japan by analyzing Japanese mutual fund performance over the period April 2011 and April 2016, This paper considers gross returns that include trading costs, management fees, and expenses, the tests of skill enables us to determine if fund managers had sufficient skill to beat passive, diversified benchmarks. The equal weight (EW) measure of fund performance provides an analysis of the average fund returns and gives an indication of the abnormal performance of the Japanese mutual fund market This difference does not materially impact the objective of active managers we refer to the Japanese unit trusts as Japanese mutual funds for the remainder of the paper.
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