AbstractThis thesis analyzes the performance, performance persistence and fund flows for samples of both domestic and international equity unit trusts (mutual funds) using a new specially constructed dataset consisting of 650 UK domestic equity unit trusts and 627 UK-based international equity unit trusts over a sample period from January 1998 to March 2015. The comparative analysis between domestic and overseas investments provides new evidence on the mutual savings market in the UK and incorporates the effects of the financial crisis post-2008. The thesis contributes to the existing literature by providing empirical evidence on the two-step flow-performance relationship outlined in Berk and Green (2004) model for UK domestic and international mutual funds.
We find little evidence that UK domestic and international equity mutual funds earn positive abnormal returns on a risk-adjusted basis across a range of investment objectives and across many alternative benchmarks. Neither UK domestic mutual fund managers nor international mutual fund managers have the ability to time the market, nor generate positive alphas in recessions and post the 2008 financial crisis. To the extent that manager skill exists in UK mutual funds, they are limited to a smaller number of funds.
The flow-performance relationship has stronger convexity for the best performing UK domestic funds compared with international mutual funds. In comparison to domestic investor flows, international fund flows are more sensitive to risk-adjusted returns than raw returns, especially the most recent risk-adjusted performance. There is evidence that search costs affect the flow-performance sensitivity for UK domestic and international mutual funds when they are proxied by fund fees and fund family size. The impact concentrate on funds in certain performance ranges, that is, the bottom quintile and middle three quintiles, rather than all performance ranges.
We find evidence of performance persistence for UK domestic equity unit trusts at the short horizon of one month and some evidence of performance persistence for international equity mutual funds at intermediate term horizons. Long-term persistence in underperformance is also evidenced for UK domestic funds. Our results from testing for the existence of the equilibrating mechanism of fund flows outlined in Berk and Green (2004) suggests that at the one-year horizon, fund flows reduce performance persistence in UK domestic unit trusts However, we find no evidence that fund flows affect performance persistence in UK-based international equity mutual funds.
|Date of Award||1 May 2019|
|Supervisor||Ian Tonks (Supervisor) & Christos Ioannidis (Supervisor)|