The Japanese Open-End Fund Puzzle

Stephen Brown (), William Goetzmann, Takato Hiraki, Toshiyuki Otsuki and Noriyoshi Shiraishi

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: Recent empirical evidence has suggested that the Japanese mutual fund industry has under-performed dramatically over the past two decades. Conjectured reasons for underperformance range from tax-dilution effects to high fees, high turnover and poor asset management. In this paper, we show that this underperformance is largely due to tax-dilution effects, and not necessarily to poor management. Using a broad database of funds which includes investment trusts closed to new investment, we show that once an instrument for the time-varying tax dilution exposure is included in a factor model, there is little evidence of poor risk-adjusted performance. A style analysis of the industry demonstrates that managers appear to pursue tax-driven dynamic strategies.

Date: 1998-10-03
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Working Paper: The Japanese Open-End Fund Puzzle (1998)
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