Fund Performance Persistence Research Articles

The Persistence of Equity Mutual Fund Performance: Further Evidence from an Emerging Economy

This study evaluates the persistence of performance of actively managed, equity-based mutual funds in Nigeria using monthly net asset values (NAVs) of 30 funds obtained from the Securities and Exchange Commission over 10 years from 2012 to 2021. We employed a non-parametric technique based on the Contingency Table to test for performance persistence, using the Cross-Product Ratio (CPR) and the Rank Correlation statistics. Evidence shows that mutual funds do not exhibit performance persistence, and the performance of loser funds does not repeat, hence past performance does not predict future performance. Therefore, we recommend that retail investors (and their advisers) should not rely on historical performance to select mutual funds as an investment vehicle. This study provides valuable insight into the performance of actively managed funds in Nigeria and contributes to the ongoing debate about the efficiency of the financial markets and the role of active fund management. It suggests that investors might be better off with passive investment management strategies, given the lack of persistence in the performance of actively managed funds.

Choice for smart investment in mutual funds: Single- or multi-period performance ranks

This study presents strong evidence of fund performance persistence using a newly proposed multi-period performance rank (MR). The MR is the average of the performance ranks, calculated using multiple performance evaluation periods. With regard to 60-month returns to the performance rank, the performance persists over the next three years. This study explains performance persistence as a combination of fund investors’ behavior and fund managers’ abilities. The MR-based portfolios have low outflows and high turnover rates. MR-based investments are a smart choice for obtaining higher future returns.

Performance Evaluation of Chinese Stock Mutual Funds

Based on a data from January 2003 to July 2020, I compare market index with mutual funds in Chinese stock market. First, I compare the cumulative return of market with that of mutual funds. Mutual funds have obvious advantages. Next, I compare their volatilities, Sharpe ratios, Sortino ratios, and maximum drawdowns. Based on these performance proxies, Chinese stock mutual funds still outperform the market index. Finally, I research the persistence of fund performance. Mutual funds with better performance in the past year tend to have higher returns in the next month.

Performance and Performance Persistence of Europe-Focused ETFs in the United States

This study examines the performance and performance persistence of US-listed exchange-traded funds (ETFs) that are focused on the European capital markets. Performance is estimated in several ways—raw returns, alphas from single-factor and multifactor regression models, and risk-adjusted returns. The sample includes 43 ETFs, and the study period spans from January 1, 2015–December 31, 2022. The results reveal that, on average, the examined ETFs cannot beat the S&P 500 Index and STOXX Europe 600 Index, which serve as proxies for the US and European stock markets, respectively. In addition, the results show that the performance of the Europe-focused ETFs does not persist.

On the short-term persistence of mutual fund performance in Europe

In this article, we examine the short-term persistence in mutual fund performance in the main European markets between January 1990 and December 2022. The mutual fund industry in Europe has experienced significant growth in recent years as a consequence of the integration of its markets. However, the European mutual fund industry is still an unexplored area of research with only a small number of significant studies compared to the US industry. Using a sample of daily survivorship bias-free data on the five most important European mutual fund countries, which includes 2734 mutual funds across all countries, we find statistically significant persistence in the post-ranking quarter across different performance models for all countries. This evidence is present across all deciles including the top-decile and bottom-decile mutual funds. Further, we also extend our analysis to high inflation periods.

Performance Persistence of US Variable Annuities Funds

Performance Persistence of US Variable Annuities Funds

The Decline in Hedge Fund Performance Persistence

The Decline in Hedge Fund Performance Persistence

Solvency and performance persistence of defined benefit private and public pension plans

PurposeThis study aims to examine the solvency and performance persistence of defined benefit private and public pension plans (DBPPs) in the Republic of Congo.Design/methodology/approachThe authors use the 2 × 2 contingency table approach and the time product ratio (TPR)-based cross-product ratio (CPR) on data covering ten years from 2011 to 2020, with variable funded ratios and excess returns, to determine the solvency and performance persistence of defined benefit pension plans.FindingsThe authors document a lack of solvency and performance persistence in DBPP funds. They conclude that the solvency and performance of DBPP funds are not repetitive. The previous year's private and public defined benefit pension funds’ results do not repeat in the current year. Hence, the current solvency and performance of defined benefit pension funds are not good predictors of future funds' solvency and performance.Originality/valueTo the best of the authors’ knowledge, this study is the first to combine solvency and performance to examine the persistence of defined benefit pension plans in sub-Saharan Africa.

Hedge fund performance persistence under different business cycles and stock market regimes

We examine different aspects of performance persistence of US hedge funds over different business cycles and stock market regimes. During periods of economic growth and bull stock markets, we report performance persistence for up to one year in the risk-adjusted returns of fund portfolios of different investment strategies, which is mainly driven by top fund performers. Performance persistence weakens dramatically during recession periods and bear stock markets. Our results are robust to different combinations of states of economic growth and stock market regimes. Trading strategies constructed on the basis of our results confirm the economic significance of our findings.

Recent evidence on the short-term and long-term performance persistence of emerging-market mutual fund returns

This paper analyzes the performance persistence of US-based emerging-market mutual funds. We use a sample of 275 actively managed funds between July 1989 and December 2020 and regress their returns on emerging-market benchmark portfolios. On average, the funds had a significant negative alpha. Contrary to some earlier evidence, we document that the short-term consistency is entirely driven by losses of underperforming funds. The return spread between the short-term winners and losers generates a significant positive alpha that can be fully explained by the momentum in emerging-market stocks. We find no evidence of any long-term regularities. Our findings show that the observed funds exhibit very similar behavior to their developed-market counterparts and may contribute to resolving some inconsistencies in the earlier results.

Morningstar Star ratings and the performance, risk and flows of European bond mutual funds

In this paper we evaluate the relation between Morningstar Star ratings and the performance, risk and flows of European bond funds over the period 2006–2019 based on a comprehensive and survivorship-free dataset comprising 939 mutual funds. Fund performance is evaluated by net and gross returns, as well as alphas based on single and multi-factor models. Our results show that well-rated mutual funds exhibit superior performance even after controlling for differences in fund characteristics although they exhibit high risks both in terms of volatility and value-at-risk. We also find strong evidence of fund performance persistence and rating persistence. Finally, Morningstar Star ratings are also useful for explaining inflows and outflows. Funds with higher ratings attract more flows even if we control for prior performance.

Industry Competition and Performance Persistence in Brazilian Equity Mutual Funds

Industry Competition and Performance Persistence in Brazilian Equity Mutual Funds

Mutual fund performance persistence: Factor models and portfolio size

We re-examine US mutual fund performance persistence. We investigate persistence (i) using both “academic” factor models and “practitioner” index models, (ii) using decile-size recursive portfolios and also portfolios formed from smaller numbers of funds, (iii) using nonparametric bootstrap p-values as well as conventional t-tests and (iv) using both net-of-fee fund returns (net alphas) and gross alphas. Our key result is that positive net alpha performance persistence can be found using small portfolios of funds together with a holding period of 6 months or less, for both practitioner index models and academic factor models.

Luck or Skill: What Drives Hedge Fund Performance Persistence?

Luck or Skill: What Drives Hedge Fund Performance Persistence?

Gender Differences in Hedge Fund Performance Persistence

Gender Differences in Hedge Fund Performance Persistence

Does performance persistence exist in mutual and pension funds? Evidence from Turkey

The objective of this study is to investigate the performance persistence of Turkish mutual and pension funds. 310 mutual and 259 pension funds were analyzed between the period of 2010–2019 in order to determine if there is an evidence of performance persistence. In this study, a persistence rate is developed, and the skill ratio is used to crosscheck the results of the persistence rate. Furthermore, six different risk-adjusted return measures, such as Sharpe, Treynor, Information, Jensen’s alpha, Sortino, and Omega ratios are calculated to analyze whether funds also exhibit superior risk-adjusted returns. The results indicate that only 2% of funds demonstrate persistence above 50%, and 15 out of 20 fund categories do not have any funds that show persistence in 10 years. Most of the persistent funds have positive skill ratios, and it is observed that the persistence rate is effective. However, it cannot be stated that there is performance persistence in the Turkish fund management industry, since performance persistence is not evident for various fund types, so investors do not need to invest in the best funds of the previous year. Additionally, the empirical results associated with risk-adjusted performance analysis indicate that persistent funds also do not generally yield higher risk-adjusted returns. The lack of persistence in funds’ performance is a significant result for investors in their investment decisions, for fund managers in their human resource policies and bonus schemes, and for regulators in their policy decisions.

Mutual fund performance components: an application to asset allocation mutual funds

ABSTRACT While most of the mutual fund performance literature focuses on returns only, a recent strand examines the activity level of portfolio managers and how this activity affects portfolio performance. We add to this literature in two ways. First, we examine asset allocation mutual funds, noting there are few studies examining this type of fund. We note our method of examination can be modified for any type of fund. Second, we use a weight-based method that separates fund performance into components, one of which provides a new measure of manager activity. Because this new measure is a component of fund performance, the effect of manager activity on performance is explicit. While we find the average fund does not beat a lagged-weight benchmark, we do find the components explain performance differences among funds. We also find evidence that manager activity persists, meaning funds exhibiting greater activity in the past tend to do so in the future. This is important because it predicts which funds are likely to have more extreme performance in the future. Finally, we find evidence of persistence in predictive skill, but find that skill is not strong enough to produce persistence in fund performance.

Mutual Fund Performance Persistence and Competition: Pakistan’s Open Ended Mutual Fund Performance Analysis

Mutual Funds through its professional managers enable small investors to enjoy benefits of capital market with small amount. This study with special focus on Pakistani Mutual Fund industry, tests the suitability of traditional measures and multifactor, asset pricing models on the Mutual Fund performance. Owing to rareness of the applicability of the multifactor models in comparison to traditional measures, in evaluating Mutual Fund performance in modern day Pakistani research, the study uses CAPM, Fama French, Carhart models in the performance evaluation of Pakistan Mutual Fund. The data of 100 open-end Mutual Funds, for the period 2005 to 2017 was collected from Mutual Fund Association of Pakistan; while the risk free rates data was collected from State Bank of Pakistan and Stock data from Pakistan Stock Exchange for predicting the results, Ratio analysis, CAPM, Fama French-3 Factor and Carhart-4 factor model were used to understand its suitability. The results demonstrated that application of CAPM, affect market factors of majority of the portfolios.Where as in other two models (Fama French, Carhart) the majority of the portfolios are insignificantly affected by the size factor, value factor and Momentum factor. The Gibbon Rose Shanken unveils the suitability of the best model and justify CAPM as the better model among the three competing models in evaluate on theMutual Fund performance in Pakistan. The study has certain implications for the managers of assets management companies as well as useful for the investors in knowing which funds perform better and which kind of funds are ideal for investment.

Do machines beat humans? Evidence from mutual fund performance persistence

We study the performance persistence of quantitative actively managed US equity funds. We show that the persistence of quantitative funds originates from poor performers and that there are reversals at the top of the performance scale, which is no different from the widely accepted evidence in the mutual fund literature. When testing for differences in performance persistence between quantitative and non–quantitative funds, we find no differences for poorly performing funds, but we observe significantly more reversals for quantitative funds at the top of the performance distribution. We also find that the differences in performance persistence are not explained by differences in flow–induced incentives to generate alpha, as there is no heterogeneity in investors preferences when allocating capital to these funds. Overall our results are consistent with machines having less skill than their human counterparts.

Millionaires speak: What drives their personal investment decisions?

We survey 2484 U.S. individuals with at least $1 million of investable assets about how well leading academic theories describe their financial beliefs and personal investment decisions. The wealthy's beliefs about financial markets and the economy are surprisingly similar to those of the average U.S. household, but the wealthy are less driven by discomfort with the market, financial constraints, and labor income considerations. Portfolio equity share is most affected by professional advice, time until retirement, personal experiences, rare disaster risk, and health risk. Concentrated equity holding is most often motivated by belief that the stock has superior risk-adjusted returns. Beliefs about how expected returns vary with stock characteristics frequently differ from historical relationships, and more risk is not always associated with higher expected returns. Active equity fund investment is most motivated by professional advice and the expectation of higher average returns. Berk and Green (2004) rationalize return chasing in the absence of fund performance persistence by positing that past returns reveal managerial skill but there are diminishing returns to scale in active management. Forty-two percent of respondents agree with the first assumption, 33% with the second, and 19% with both.