Performance of Mutual Funds: A Review of Major Research Findings across the World during Five-Decades of 20th Century (1950–2000)

Abstract

Mutual funds are primary vehicle for channeling the savings into financial assets. As the industry has evolved over the years, there have arisen questions about the nature, operations, and characteristics of the funds themselves. Researchers have addressed these issues in great variety of studies. One of the most frequently attended topics in the current literature is about mutual fund performance. While earlier studies lay emphasis on the straightforward performance measures and benchmarking, the focus on performance dimension seems to have changed from performance-based studies to style- based studies which also present information regarding persistence in fund performance, fund characteristics, stock-picking, selectivity and timing abilities of managers. Following this swing of stress, the methods adopted and the data used by other papers have changed too. This study therefore aims to build on the current literature by assessing all these relevant studies. With an objective of reporting only significant and influential findings, this study reviews largely cited papers of journals of very high reputation (Wiley, JSTORE, Springer etc.). The study has been evaluated in terms of five dimensions, namely; (i) Questions Addressed by Author(s), (ii) Method(s) Adopted, (iii) Data Employed, (iv) Key Findings, (v) Contribution to the existing literature. Accordingly, the study meets the need to blend the key findings that have been contributed on the history of mutual funds. Having studied the extensive (yet not exhaustive) literature on the respective topics, some of the common findings are as in terms of existence of performance persistence, fund manager's timing & stock picking ability, impact of expenses and other characteristics on fund performance, role of luck, funds’ ability to outperform benchmark, issues in benchmark selection etc. The study will be useful for establishing theoretical background for other researchers. The study can further be extended with exhaustive literature review, separately for each parameter.