Is There Persistence After All? New International Evidence on the Berk and Green Model
Northern Finance Association - NFA 2013 Annual Meeting
This paper challenges the widely accepted stylized fact that mutual fund performance persistence is limited. Using a sample of 27 fund industries, we find significant persistence in more than two thirds of these which is because they have constant or increasing returns to scale. This evidence is consistent with a Berk and Green model with a flexible returns to scale investment technology and such a model is capable of explaining the cross-country variation in persistence dynamics as fund size grows. Finally, we show that differences in mutual fund industry development explain returns to scale and persistence dynamics across countries. Our findings suggest that performance persistence declines as mutual fund industries develop.
Mutual fund persistence; Mutual fund flows; Returns to scale; Berk and Green model
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