Starting on the wrong foot: Seasonality in mutual fund performance |
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| Institution: | 1. Monash Business School, Caulfield East, VIC 3145, Australia;2. NYU Stern School of Business, New York, NY 10012, United States;3. Department of Finance, University of Melbourne, Melbourne, VIC 3010, Australia;4. Division of Accounting and Finance, Alliance Manchester Business School, Manchester M15 6PB, United Kingdom;5. Department of Accounting and Finance, Lancaster University Management School, Lancaster LA1 4YX, United Kingdom;1. Department of Accounting, College of Business, Soochow University, Taipei 100, Taiwan;2. Department of Finance, School of Management, Xiamen University, Xiamen 361005, China;1. Department of Banking and Finance, Monash Business School, Monash University, Caulfield Campus. PO Box 197, Caulfield East, Victoria 3145, Australia;2. Deceased;3. Centre for Financial Econometrics, Department of Finance, Deakin Business School, Deakin University, Victoria 3125, Australia;1. Department of Economics, Finance and Accounting, Frederick University Cyprus, 7 Frederickou Street, Nicosia 1036, Cyprus;2. Department of Accounting and Finance, University of Cyprus, P.O. Box 20537, CY 1678 Nicosia, Cyprus;3. Department of Accounting and Finance, University of Cyprus, P.O. Box 20537, CY 1678 Nicosia, Cyprus; School of Management and Business, King''s College London; and Sloan School of Management, MIT |
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| Abstract: | We document a systematic seasonal component in the aggregate underperformance of active mutual funds. At the aggregate level, active funds underperform the market and other passive benchmarks only in the first month of a quarter. This intra-quarter performance seasonality holds across fund sizes and investment styles. The pattern is consistent with short-term stock return reversal effects along with aggregate window-dressing and, to a lesser extent, NAV-inflation practices around quarter-ends. We find marginal or no evidence of microstructure biases, fund investor flows, or cash distributions as sources of this seasonality. Our findings highlight new features of the active management underperformance puzzle. |
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