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The performance of mutual funds on French stock market: Do star funds' managers exist or do funds have to hire chimpanzees?

Author

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  • Michel Blanchard

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Philippe Bernard

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

We test here the kahneman (kahneman 2011) results about fund managers: that is, do managers are really skilled or could any chimpanzee do the job? Moreover, the recent stormy period should enlighten us about the interest to invest in mutual funds: do they over perform the market? Do they smooth the losses? Do they have well managed the alternative bearish and bullish periods of the markets? Few recent studies focus on the French Stock market. In this paper, we investigate the performance, persistence and behavior of mutual funds only investing in the Paris stock exchange market from 2000 to 2012. We find that funds clearly over-perform the market on average but only on a 60 months investment horizon. Average annual excess is close to zero (+0.3%) for funds which were active over all the period. Yet, some have salient good (bad) relative performances. The challenge is then to distinguish skill from luck since funds can have extreme returns by luck. Our approach is to test for persistence in fund returns, that is, whether past winners continue to produce high returns and losers continue to underperform. Then, we apply the Carhart 1997 4-factors model, in order to evaluate the weight of the systematic drivers of the performance.

Suggested Citation

  • Michel Blanchard & Philippe Bernard, 2017. "The performance of mutual funds on French stock market: Do star funds' managers exist or do funds have to hire chimpanzees?," Working Papers hal-01515492, HAL.
    • Handle: RePEc:hal:wpaper:hal-01515492
    Note: View the original document on HAL open archive server: https://hal.science/hal-01515492
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    References listed on IDEAS

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    1. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, May.
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    4. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
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    6. Malkiel, Burton G, 1995. "Returns from Investing in Equity Mutual Funds 1971 to 1991," Journal of Finance, American Finance Association, vol. 50(2), pages 549-572, June.
    7. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
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