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The performance distribution and managerial skill of passive funds: evidence from the Korean market

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  • Jaeram Lee
  • Changjun Lee

Abstract

- This study investigates the performance distribution of passive funds in the Korean market and compares it with the performance distribution of active funds. The key findings are as follows, first, the performance distribution of passive funds has a thicker tail compared to that of active funds. There are passive funds that achieve outstanding performance, and both the false discovery rate (FDR) analysis and simulation analysis suggest that their outperformance is driven by managerial skill rather than luck. Second, passive fund performance is more persistent compared to active fund performance. Third, investors are less responsive to passive fund performance compared to active fund performance. The fund flow-performance relationship is significantly positive for active funds but not for passive funds. This implies that investors may not recognize the managerial skills of passive funds.

Suggested Citation

  • Jaeram Lee & Changjun Lee, 2023. "The performance distribution and managerial skill of passive funds: evidence from the Korean market," Journal of Derivatives and Quantitative Studies: 선물연구, Emerald Group Publishing Limited, vol. 31(4), pages 328-346, October.
    • Handle: RePEc:eme:jdqspp:jdqs-05-2023-0009
    DOI: 10.1108/JDQS-05-2023-0009
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