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Do mutual funds have consistency in their performance?


Using a comprehensive data set of 714 Chinese mutual funds from 2004 to 2015, the study investigates these funds’ performance persistence by using the Capital Asset Pricing model, the Fama-French three-factor model and the Carhart Four-factor model. For persistence analysis, we categorize mutual funds into eight octiles based on their one year lagged performance and then observe their performance for the subsequent 12 months. We also apply Cross-Product Ratio technique to assess the performance persistence in these Chinese funds. The study finds no significant evidence of persistence in the performance of the mutual funds. Winner (loser) funds do not continue to be winner (loser) funds in the subsequent time period. These findings suggest that future performance of funds cannot be predicted based on their past performance.

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    We run the regression only for principal guaranteed funds and finds beta = 0.20, which is very low to study equity funds.

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    Survivorship bias is a problem that cannot be ignored in Asset Pricing study. The exclusion of dead or inactive funds from the sample results in upward bias of returns. (Brown and Goetzmann 1995)

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    The American mutual funds showed annual growth of 16% from year 1980 to year 2008 (Wahal and Wang 2011). The Chinese mutual fund industry witnessed the yearly growth of 52% from year 2004 to 2009 (Jun et al. 2014).


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We are grateful to the anonymous referees for their constructive comments which helped us improving the quality of this paper. All errors and omissions are ours. Part of the study reported here was conducted when the first author was a PhD scholar at Dongbei University of Finance and Economics at China. This research is supported by the National Natural Science Foundation of China (71373236) and the Humanities and Social Sciences Foundation of the Ministry of Education, China (17YJA630015).

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Correspondence to Muhammad Zubair Tauni.

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Rao, Z., Tauni, M.Z., Ahsan, T. et al. Do mutual funds have consistency in their performance?. Port Econ J (2019). https://doi.org/10.1007/s10258-019-00163-2

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  • China
  • Consistency
  • Emerging market
  • Mutual fund
  • Performance