Can mutual fund characteristics predict future performance? Evidence from Portugal

Maria Inês Sá, Paulo Leite and Maria Carmo Correia

Studies in Economics and Finance, 2024, vol. 41, issue 5, 1106-1118

Abstract: Purpose - This paper aims to investigate not only the performance of Portuguese mutual funds investing in domestic and international equities but also which fund characteristics, such as age, size, family size, expense ratios and flows, influence future performance. Design/methodology/approach - Fund performance is evaluated over the 2005–2022 period by a robust six-factor model, while the impact of fund characteristics on performance is assessed by a set of fixed-effects panel data regressions with two-way cluster-robust standard errors. Findings - The results show that, while funds investing in domestic equities predominantly exhibit neutral performance, most international equity funds have significantly negative alphas. The authors document a negative and statistically significant relationship between fund age and performance for all fund categories. Total expense ratios have an inverse relationship with domestic equity fund performance but do not impact the performance of international equity funds significantly. Though fund flows have a neutral effect on performance across the overall period, they are important determinants of both domestic and international funds’ performance in more recent years. Originality/value - The authors contribute to the literature by carrying out a comprehensive analysis, based on recent and robust methodologies, of the impact of mutual fund characteristics on the future performance of Portuguese equity funds. The research findings serve as a premise for advising investors on how to choose the top-performing funds.

Keywords: Mutual fund performance; Multifactor models; Fund characteristics; Panel data; G11; G14; G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-07-2023-0441

DOI: 10.1108/SEF-07-2023-0441

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