Short-Term Persistence in Mutual Fund Performance

Bollen, Nicolas P. B.; Busse, Jeffrey A.

doi:10.1093/rfs/hhi007

Cited by 544 publications

(335 citation statements)

References 34 publications

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“…This suggests that, with a given return history and fund size, high risk funds experience a somewhat lower liquidation probability. 6 This is not inconsistent with the …nding that high-risk funds are more likely to liquidate, but it does indicate that high-risk funds are allowed to have more extreme negative returns than low-risk funds before they decide to liquidate.…”

Section: Modelling the Liquidation Processmentioning

confidence: 93%

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Survival, Look-Ahead Bias, and Persistence in Hedge Fund Performance

Baquero¹,

Horst²,

Verbeek³

2005

J. Financ. Quant. Anal.

222

126

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In this paper we analyze the persistence in the performance of hedge funds taking into account look-ahead bias (multi-period sampling bias). To do so, we model liquidation of hedge funds and analyze how it depends upon historical performance. Next, we use a weighting procedure that eliminates look-ahead bias in measures for performance persistence. In contrast to earlier results for mutual funds, the impact of look-ahead bias is exacerbated for hedge funds due to their greater level of total risk. At the four quarter horizon, look-ahead bias can be as large as 3.8%, depending upon the decile of the distribution. At the quarterly level, we …nd positive persistence in hedge fund returns, also after correcting for investment style. The empirical pattern at the annual level is also consistent with positive persistence, but its statistical signi…cance is weak.

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Section: Modelling the Liquidation Processmentioning

confidence: 93%

“…Gruber, 1996, Carhart, 1997, Agarwal and Naik, 2000, Boyson, 2003, Bollen andBusse, 2004). The underlying idea behind these studies is that investors usually invest more in funds that recently performed well in the expectation that these funds will continue to do so in the future.…”

Section: Introductionmentioning

confidence: 99%

Survival, Look-Ahead Bias, and Persistence in Hedge Fund Performance

Baquero¹,

Horst²,

Verbeek³

2005

J. Financ. Quant. Anal.

222

126

View full text Add to dashboard Cite

show abstract

“…Indeed, both individual and institutional investors will be interested in a methodology for efficiency evaluation which helps them to choose those funds with the best result prospects. Accordingly, a broad literature focused on the analysis of mutual fund performance persistence has emerged over the last few years (see, for instance Carhart, 1997;Bollen and Busse, 2005 Therefore, we will analyze the performance of FDH, order-m and order-α methods taking into account their ability to select efficient funds in the future. In fact, an appropriate methodology for measuring mutual funds' efficiency is one offering investment recommendations that, when followed, provide better performance; in other words, a methodology that captures the persistence of managers' skills over time.…”

Section: Measuring the Performance Persistence Of Partial Frontiersmentioning

confidence: 99%

“…Following some relevant contributions in the performance persistence literature (see, for instance Carhart, 1997;Bollen and Busse, 2005) we will analyze whether order-m and order-α methods have the ability to rank funds according to their performance. Specifically, we construct equally-weighted portfolios (Grinblatt and Titman, 1992) that follow investment strategies based on the past efficiency of mutual funds using results yielded by FDH, order-m and order-α methods.…”

Section: Measuring the Performance Persistence Of Partial Frontiersmentioning

confidence: 99%

“…For instance, Carhart (1997), Lynch and Musto (2003) and Bollen and Busse (2005) show different levels of persistence for the best and worst mutual funds. The rebalancing of the portfolio and the approach of different quantile levels is a useful procedure in finance for making the fund more robust.…”

Section: Measuring the Performance Persistence Of Partial Frontiersmentioning

confidence: 99%

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On the informativeness of persistence for evaluating mutual fund performance using partial frontiers

Matallín‐Sáez

Soler‐Domínguez

Tortosa‐Ausina

2014

Omega

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The last few years have witnessed a rapid evolution in the literature evaluating mutual fund performance using frontier techniques. The instruments applied, mostly DEA (Data Envelopment Analysis) and, to a lesser extent, FDH (Free Disposal Hull), are able to encompass several dimensions of performance, but they also have some disadvantages that might be preventing a wider acceptance. The recently developed order-m and order-α partial frontiers overcome some of the disadvantages (they are robust with respect to extreme values and noise, and do not suffer from the well-known curse of dimensionality) while keeping the main virtues of DEA and FDH (they are fully-nonparametric). In this article we apply not only the non-convex counterpart of DEA (FDH) but also order-m and order-α partial frontiers to a sample of US mutual funds. The results obtained for both order-m and order-α are useful, since a full ranking of the mutual funds' performance can be obtained. We merge these methods with the literature on mutual fund performance persistence. By combining the two literatures we derive an algorithm which establishes how the choice of m and α parameters intrinsic to order-m and order-α (respectively) relate to the existence of performance persistence and the contrarian effect.

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Institutional Investors

Ramadorai¹

2010

Behavioral Finance

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This article provides a framework for analysing the character and degree of ownership engagement by institutional investors. It argues that the general term "institutional investor" in itself doesn't say very much about the quality or degree of ownership engagement. It is therefore an evasive "shorthand" for policy discussions about ownership engagement. The reason is that there are large differences in ownership engagement between different categories of institutional investors. There are also differences in ownership engagement within the same category of institutional investors such as hedge funds, investment funds, etc. These differences arise from the fact that the degree of ownership engagement is determined by a number of different features and choices that together make up the institutional investor's "business model". When ownership engagement is not a central part of the business model, public policies and voluntary standards aiming to improve the quality of ownership engagement among institutional investors are likely to have limited effect. Based on an empirical overview of the relative size of different categories of institutional investors, the article identifies a set of 7 features and 19 choices that in different combinations define the institutional investor's business model. These features and choices are then used to establish a taxonomy for identifying different degrees of ownership engagement ranging from "no engagement" to "inside engagement".

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Short-Term Persistence in Mutual Fund Performance

Cited by 544 publications

References 34 publications

Survival, Look-Ahead Bias, and Persistence in Hedge Fund Performance

Survival, Look-Ahead Bias, and Persistence in Hedge Fund Performance

On the informativeness of persistence for evaluating mutual fund performance using partial frontiers

Institutional Investors

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