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A Survival Analysis of Australian Equity Mutual Funds

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Abstract

Determining which types of mutual (or managed) investment funds are good financial investments is complicated by potential surbivorship biases. This project adds to a small recent international literature on the patterns and determinants of mutual fund survivorship. We use statistical techniques for survival data that are rarely applied in finance. Of specific interest is the hazard rate of fund closure, which gives the variation over time in the conditional probability of fund closure given fund survival to date. For a sample of 251 retail investment funds in Australia from 1980 to 1999 we identify a hump-shaped hazard function that reaches its maximum after about five or six years, a pattern similar to the UK findings of Lunde, Timmermann and Blake (1999). We also consider the impact of monthly and annual fund performance (gross and relative to a market benchmark). Returns relative to the benckmark are much more important than gross returns, with hgiher relative returns associated with lower hazard of fund closure. There appears to be an asymmetric response to performance, with positive shocks having a larger impact on the hazard rate than negative shocks.

Suggested Citation

  • A. Colin Cameron & Anthony D. Hall, 2003. "A Survival Analysis of Australian Equity Mutual Funds," Research Paper Series 94, Quantitative Finance Research Centre, University of Technology, Sydney.
    • Handle: RePEc:uts:rpaper:94
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    File URL: http://www.qfrc.uts.edu.au/research/research_papers/rp94.pdf
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    References listed on IDEAS

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    1. Lunde, Asger & Timmermann, Allan & Blake, David, 1999. "The hazards of mutual fund underperformance: A Cox regression analysis," Journal of Empirical Finance, Elsevier, vol. 6(2), pages 121-152, April.
    2. Lehmann, Bruce N & Modest, David M, 1987. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, vol. 42(2), pages 233-265, June.
    3. Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," The Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-580.
    4. 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.
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    Cited by:

    1. M. Kabir Hassan & Jung Suk-Yu, 2007. "Rational Speculative Bubbles: An Empirical Investigation of the Middle East and North African Stock Markets," NFI Working Papers 2007-WP-31, Indiana State University, Scott College of Business, Networks Financial Institute.
    2. Qiang Bu & Nelson Lacey, 2009. "On understanding mutual fund terminations," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 33(1), pages 80-99, January.
    3. Gabe de Bondt & Tuomas Peltonen & Daniel Santabarbara, 2011. "Booms and busts in China's stock market: estimates based on fundamentals," Applied Financial Economics, Taylor & Francis Journals, vol. 21(5), pages 287-300.
    4. Cogneau, Philippe & Hübner, Georges, 2015. "The prediction of fund failure through performance diagnostics," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 224-241.
    5. Hassan, Mohammad Kabir & Yu, Jung-Suk & Rashid, Mamunur, 2015. "Rational Speculative Bubbles in the Frontier Emerging Stock Markets," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 49(2), pages 27-38.
    6. Jo-Hui Chen & Chih-Sean Chen, 2012. "The study of contagious paces of financial crises," Quality & Quantity: International Journal of Methodology, Springer, vol. 46(6), pages 1825-1846, October.
    7. Jung-Suk Yu & Kabir Hassan, 2008. "Rational Speculative Bubbles: An Empirical Investigation of the Middle East and North African (MENA) Stock Markets," Working Papers 388, Economic Research Forum, revised 01 Jan 2008.
    8. Jung‐Suk Yu & M. Kabir Hassan, 2010. "Rational speculative bubbles in MENA stock markets," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 27(3), pages 247-264, August.

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    More about this item

    Keywords

    mutual funds; survivorship bias; duration analysis; cox regression;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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