Mutual Fund Performance and Persistence in Taiwan: A Non-Parametric Approach

Chi-Sheng Hsu and Jwu-Rong Lin

The Service Industries Journal, 2007, vol. 27, issue 5, 509-523

Abstract: This paper applies data envelopment analysis (DEA) to measure the performance of Taiwan domestic equity funds during the period 1999 to 2003. To test performance persistence, we first divide the sample funds into low efficiency (0--25th percentile), middle efficiency (26th--75th percentile), and high efficiency (76th--100th percentile) groups according to their rankings on technical efficiency (TE) and Sharpe ratios, respectively. Then, based on the previous one-, two-, and three-year performances of the sample funds, we employ iterative seemingly unrelated regressions to analyse the persistence of sample fund performance. The results show that there exists a significant ‘hot hands’ effect in Taiwan domestic equity funds under the TE measure, but not under the measure of Sharpe ratios. The paper concludes that the different results in performance persistence analyses between the above two measures is driven by the DEA taking transaction costs into consideration.

Date: 2007
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DOI: 10.1080/02642060701411658

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The Service Industries Journal is currently edited by Eileen Bridges, Professor Domingo Ribeiro, Ronald Goldsmith, Barry Howcroft and Youjae Yi

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