Fund Flows, Manager Changes, and Performance Persistence. (17th May 2017)

• Record Type: Journal Article
• Authors: Bessler, Wolfgang; Blake, David; Lückoff, Peter; Tonks, Ian
• Is Part Of: Review of finance. Volume 22:Number 5(2018)
• Page Start: 1911
• Page End: 1947
• Publication Date: 2017-05-17
• Subjects: Mutual funds -- Performance persistence -- Fund flows -- Manager changes; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfx017
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: Most empirical studies suggest that mutual funds do not persistently outperform an appropriate benchmark in the long run. We analyze this lack of persistence in terms of two equilibrating mechanisms: fund flows and manager changes. Using data on actively managed US equity mutual funds, we find that if neither mechanism is operating, winner funds (top-decile ranked in previous year) continue to significantly outperform loser funds (bottom-decile ranked in previous year) by 4.08 percentage points per annum. However, the difference between previous winner and loser funds declines to zero within one year if the two mechanisms are acting together. Thus, equity mutual fund out- and underperformance are unlikely to persist in well-functioning financial markets.