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The volatility of mutual fund performance

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  • Livingston, Miles
  • Yao, Ping
  • Zhou, Lei

Abstract

Previous research has shown that fund performance is reduced by higher expense ratios but improved by more active management. Using data for equity mutual funds from 1991 to 2012, we show that prior studies has overlooked the fact that a high degree of active management magnifies the extremes of performance. In addition, funds with higher expense ratios and turnover ratio have had greater volatility of performance as well as lower mean performance, a doubly adverse pattern. Thus, mutual funds with more active management, higher expense ratios and turnover ratios are riskier.

Suggested Citation

  • Livingston, Miles & Yao, Ping & Zhou, Lei, 2019. "The volatility of mutual fund performance," Journal of Economics and Business, Elsevier, vol. 104(C), pages 1-1.
    • Handle: RePEc:eee:jebusi:v:104:y:2019:i:c:2
    DOI: 10.1016/j.jeconbus.2019.02.001
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    2. Otero-González, Luis & Leite, Paulo & Durán-Santomil, Pablo & Domingues, Renato, 2022. "Morningstar Star ratings and the performance, risk and flows of European bond mutual funds," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 479-496.
    3. Rakowski, David & Yamani, Ehab, 2021. "Endogeneity in the mutual fund flow–performance relationship: An instrumental variables solution," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 247-271.

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    More about this item

    Keywords

    Mutual fund performance; Risk;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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