Fund flows, manager changes and performance persistence

Wolfgang Bessler, David Blake, Peter Luckoff, Ian Tonks

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Abstract

Most empirical studies suggest that mutual funds do not persistently outperform an appropriate benchmark in the long run. We analyze this lack of persistence in terms of two equilibrating mechanisms: fund flows and manager changes. Using data on actively managed US equity mutual funds, we find that if neither mechanism is operating, winner funds (top-decile ranked in previous year) continue to significantly outperform loser funds (bottom-decile ranked in previous year) by 4.08 percentage points per annum. However, the difference between previous winner and loser funds declines to zero within one year if the two mechanisms are acting together. Thus, equity mutual fund out- and underperformance are unlikely to persist in well-functioning financial markets.
Original languageEnglish
Article numberrfx017
Pages (from-to)1911-1947
Number of pages37
JournalReview of Finance
Volume22
Issue number5
Early online date17 May 2017
DOIs
Publication statusPublished - 1 Aug 2018

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Mutual funds
Fund flows
Managers
Performance persistence
Equity
Benchmark
Underperformance
Fund managers
Empirical study
Functioning
Persistence
Financial markets

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Bessler, W., Blake, D., Luckoff, P., & Tonks, I. (2018). Fund flows, manager changes and performance persistence. Review of Finance, 22(5), 1911-1947. [rfx017]. https://doi.org/10.1093/rof/rfx017

Fund flows, manager changes and performance persistence. / Bessler, Wolfgang; Blake, David; Luckoff, Peter; Tonks, Ian.

In: Review of Finance, Vol. 22, No. 5, rfx017, 01.08.2018, p. 1911-1947.

Research output: Contribution to journalArticle

Bessler, W, Blake, D, Luckoff, P & Tonks, I 2018, 'Fund flows, manager changes and performance persistence', Review of Finance, vol. 22, no. 5, rfx017, pp. 1911-1947. https://doi.org/10.1093/rof/rfx017
Bessler W, Blake D, Luckoff P, Tonks I. Fund flows, manager changes and performance persistence. Review of Finance. 2018 Aug 1;22(5):1911-1947. rfx017. https://doi.org/10.1093/rof/rfx017
Bessler, Wolfgang ; Blake, David ; Luckoff, Peter ; Tonks, Ian. / Fund flows, manager changes and performance persistence. In: Review of Finance. 2018 ; Vol. 22, No. 5. pp. 1911-1947.
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