Does past performance affect mutual fund tracking error in Taiwan?

Ching-Ping Wang, Hung-Hsi Huang and Cheng-Yu Chen

Applied Economics, 2015, vol. 47, issue 51, 5476-5490

Abstract: This study examines the relationship between fund past performance and manager choice of portfolio risk in Taiwan. Employing the exponential generalized autoregressive conditional heteroscedasticity and linear regression models, the results demonstrate that historically poor average performance does not increase mutual fund tracking error (TE) or portfolio risk. Additionally, yearly tournament behaviour, namely mid-year losers increasing their last-half year TEs, only appears in funds with higher management fees. This implies that managers of high management fee funds actively increase TE in response to poor historical performance, to enable them to beat the market during future months or the second half of the year.

Date: 2015
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DOI: 10.1080/00036846.2015.1051653

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