Determinants of Mutual Fund Performance Persistence: A Cross-Sector Analysis
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Mutual funds are managed pools of financial assets that can be invested in by retail or institutional investors. Funds can be classified into sectors on the basis of the securities they invest in. These sectors then become a natural peer group within which funds compete and against whom external bodies typically assess performance. Knowing whether there is persistence in mutual fund performance is of concern both to investors and to fund managers. The existence of performance persistence tells us whether fund managers add value and whether past fund performance information should be taken into account by investors when making their investment decisions
The literature on performance persistence is extensive.1 One question that has not been asked to date is whether past performance information is equally useful for predicting fund performance across different sectors. Knowing whether this is the case could be of interest to those on both the demand and supply side of the fund management industry. We would expect some investors to use such information to focus their investments in sectors where past returns are more useful in predicting performance. On the supply side, fund families might choose to open new funds in sectors where they have a greater chance to do persistently better than other funds (or shun such sectors for fear of doing persistently worse). Download free Determinants of Mutual Fund Performance Persistence: A Cross-Sector Analysis.pdf here
The literature on performance persistence is extensive.1 One question that has not been asked to date is whether past performance information is equally useful for predicting fund performance across different sectors. Knowing whether this is the case could be of interest to those on both the demand and supply side of the fund management industry. We would expect some investors to use such information to focus their investments in sectors where past returns are more useful in predicting performance. On the supply side, fund families might choose to open new funds in sectors where they have a greater chance to do persistently better than other funds (or shun such sectors for fear of doing persistently worse). Download free Determinants of Mutual Fund Performance Persistence: A Cross-Sector Analysis.pdf here
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