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Recent evidence on the short-term and long-term performance persistence of emerging-market mutual fund returns
Institution:1. Department of Senior Citizen Service Management, National Taichung University of Science and Technology, Taiwan;2. Department of Accounting Information, National Taichung University of Science and Technology, 129, Sanmin Rd., Sec. 3, Taichung 40401, Taiwan;2. University of Rome Tor Vergata, Dipartimento di Economia e Finanza, Via Columbia 2, 00133 Roma, Italy;4. Università Politecnica delle Marche, School of Business Giorgio Fuà, Money and Finance Research Group (MoFiR), Piazza Martelli 8, Ancona, Italy;1. Faculty of Economics, University of Belgrade, Kamenička 6, 11000 Belgrade, Serbia;2. Moody''s Analytics UK Limited, One Canada Square, Canary Wharf, London E14 5FA, United Kingdom;1. Universidad de Zaragoza, Department of Accounting and Finance, Spain;2. Universitat Jaume I, Department of Finance and Accounting, Spain;1. African Governance and Development Institute, P.O. Box 8413, Yaoundé, Cameroon;2. Faculty of Applied Economics, University of Antwerp, Stadscampus Prinsstraat 13, 2000,Antwerp, Belgium;3. Department of Economics, University of South Africa, P. O. Box 392, UNISA, 0003 Pretoria, South Africa;4. Department of Economics & Development Studies,Covenant University, Ota, Ogun State, Nigeria
Abstract:This paper analyzes the performance persistence of US-based emerging-market mutual funds. We use a sample of 275 actively managed funds between July 1989 and December 2020 and regress their returns on emerging-market benchmark portfolios. On average, the funds had a significant negative alpha. Contrary to some earlier evidence, we document that the short-term consistency is entirely driven by losses of underperforming funds. The return spread between the short-term winners and losers generates a significant positive alpha that can be fully explained by the momentum in emerging-market stocks. We find no evidence of any long-term regularities. Our findings show that the observed funds exhibit very similar behavior to their developed-market counterparts and may contribute to resolving some inconsistencies in the earlier results.
Keywords:Mutual funds  Active strategy  Emerging markets  Diversified equity  Fama–French factors  Momentum
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