IDEAS home Printed from https://ideas.repec.org/p/tiu/tiucen/48e11691-6431-4892-9c62-f17a62249ce2.html
   My bibliography  Save this paper

Estimating short-run persistence in mutual fund performance

Author

Listed:
  • Ter Horst, J.R.

    (Tilburg University, Center For Economic Research)

  • Verbeek, M.J.C.M.

    (Tilburg University, Center For Economic Research)

Abstract

This paper analyzes the properties of a number of estimators that can be used to estimate short-run persistence in mutual fund returns. When data for different funds are pooled, it is advisable to correct for cross-sectional differences in expected returns. However, these adjustments may induce biases in the estimated persistence coefficients and thus lead to spurious persistence. Theoretical derivations, combined with a Monte Carlo study, show that these biases cannot be neglected for the samples that are typically used in applied work. We also estimate the short-run persistence in two samples of U.S. open-end mutual funds using quarterly returns for 1987-1994. An important conclusion is that the results are quite sensitive to the estimation method that is employed. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ter Horst, J.R. & Verbeek, M.J.C.M., 1997. "Estimating short-run persistence in mutual fund performance," Discussion Paper 97.21, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:48e11691-6431-4892-9c62-f17a62249ce2
    as

    Download full text from publisher

    File URL: https://pure.uvt.nl/ws/portalfiles/portal/1253405/HJVM5617277.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    2. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    3. Hendricks, Darryll & Patel, Jayendu & Zeckhauser, Richard, 1993. "Hot Hands in Mutual Funds: Short-Run Persistence of Relative Performance, 1974-1988," Journal of Finance, American Finance Association, vol. 48(1), pages 93-130, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jank, Stephan & Wedow, Michael, 2015. "Sturm und Drang in money market funds: When money market funds cease to be narrow," Journal of Financial Stability, Elsevier, vol. 16(C), pages 59-70.
    2. Jenke Ter Horst & Marno Verbeek, 2007. "Fund Liquidation, Self-selection, and Look-ahead Bias in the Hedge Fund Industry," Review of Finance, European Finance Association, vol. 11(4), pages 605-632.
    3. Keyi Zhang & Ramazan Gençay, 2019. "Mutual Fund Performance In Developing And Advanced World Networks," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(02), pages 399-421, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ter Horst, J.R. & Verbeek, M.J.C.M., 1997. "Estimating short-run persistence in mutual fund performance," Other publications TiSEM 48e11691-6431-4892-9c62-f, Tilburg University, School of Economics and Management.
    2. Clemens Sialm & Hanjiang Zhang, 2020. "Tax‐Efficient Asset Management: Evidence from Equity Mutual Funds," Journal of Finance, American Finance Association, vol. 75(2), pages 735-777, April.
    3. Du, Ding & Huang, Zhaodan & Blanchfield, Peter J., 2009. "Do fixed income mutual fund managers have managerial skills?," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 378-397, May.
    4. Detzel, F. Larry & Weigand, Robert A., 1998. "Explaining Persistence in Mutual Fund Performance," Financial Services Review, Elsevier, vol. 7(1), pages 45-55.
    5. Huij, Joop & Derwall, Jeroen, 2008. ""Hot Hands" in bond funds," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 559-572, April.
    6. Carlos F. Alves & Victor Mendes, 2006. "Mutual fund flows’ performance reaction: does convexity apply to small markets?," FEP Working Papers 204, Universidade do Porto, Faculdade de Economia do Porto.
    7. Zhang, Jinhua & Wang, Guipu & Yan, Cheng, 2020. "Can foreign equity funds outperform their benchmarks? New evidence from fund-holding data for China," Economic Modelling, Elsevier, vol. 90(C), pages 11-20.
    8. Feng, Xunan & Johansson, Anders C., 2015. "Can mutual funds pick stocks in China? Evidence from the IPO market," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 170-186.
    9. Galla Salganik-Shoshan, 2016. "Investment flows: Retail versus institutional mutual funds," Journal of Asset Management, Palgrave Macmillan, vol. 17(1), pages 34-44, January.
    10. Joe-Ming Lee, 2013. "Evidence from Business Strategy of Mutual Fund Managers after the Financial Crisis - Panel Smooth Transition Regression Model," Journal of Asian Business Strategy, Asian Economic and Social Society, vol. 3(3), pages 48-58, March.
    11. Iqbal Hussain, Hafezali & Mohd Farid, Shamsudin & Noor H, Jabarullah, 2016. "Non Linear Speed of Adjustment to Lead Leverage Levels and the Timing Element in Equity Issues: Empirical Evidence from the UK," MPRA Paper 79261, University Library of Munich, Germany.
    12. Iuliana Ismailescu, 2008. "Determinants of the Time-Variation in Emerging-Market Closed-End Fund Premiums: A Comparison between Equity and Bond Funds," The American Economist, Sage Publications, vol. 52(2), pages 54-64, October.
    13. Şebnem Er & Bengü Vuran Author-Workplace-Name: Teaching and Research Assistant, PhD, Istanbul University, Faculty of Business Administration, Finance Department, 2012. "Factors Affecting Stock Returns of Firms Quoted in ISE Market: A Dynamic Panel Data Approach," International Journal of Business and Social Research, LAR Center Press, vol. 2(1), pages 108-121, February.
    14. Mazur, Mieszko & Salganik-Shoshan, Galla & Zagonov, Maxim, 2017. "Comparing performance sensitivity of retail and institutional mutual funds’ investment flows," Finance Research Letters, Elsevier, vol. 22(C), pages 66-73.
    15. Huij, Joop & Verbeek, Marno, 2007. "Cross-sectional learning and short-run persistence in mutual fund performance," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 973-997, March.
    16. Joe-Ming Lee & Ku-Hsieh Chen & Jying-Nan Wang, 2016. "The Relation Between Bond Fund Investor Flows And Volatility," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(05), pages 1-13, December.
    17. Fernando Rubio, 2005. "Eficiencia De Mercado, Administracion De Carteras De Fondos Y Behavioural Finance," Finance 0503028, University Library of Munich, Germany, revised 23 Jul 2005.
    18. Manuel Ammann & Otto Huber & Markus Schmid, 2013. "Hedge Fund Characteristics and Performance Persistence," European Financial Management, European Financial Management Association, vol. 19(2), pages 209-250, March.
    19. Lee, John Byong-Tek & Ma, Jun & Margaritis, Dimitris & Yang, Wanyi, 2023. "Is anti-herding always a smart choice? Evidence from mutual funds," International Review of Financial Analysis, Elsevier, vol. 90(C).
    20. Viet Anh Dang, 2013. "Testing capital structure theories using error correction models: evidence from the UK, France and Germany," Applied Economics, Taylor & Francis Journals, vol. 45(2), pages 171-190, January.

    More about this item

    Keywords

    portfolio investment; investment trusts; estimation; performance; pension funds;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tiu:tiucen:48e11691-6431-4892-9c62-f17a62249ce2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Richard Broekman (email available below). General contact details of provider: http://center.uvt.nl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.