Fund Flows, Manager Changes, and Performance Persistence*

Does motivation matter when assessing trade performance? An analysis of mutual funds

Wolfgang Bessler, David Blake, Peter Lückoff and Ian Tonks

Review of Finance, 2018, vol. 22, issue 5, 1911-1947

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.

Keywords: Mutual funds; Performance persistence; Fund flows; Manager changes (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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