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The performance of open-end international mutual funds

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  • Paula Tkac

Abstract

The 1990s witnessed tremendous growth in the assets of international mutual funds. This growth is likely to continue as more investors seek the diversification benefits of foreign assets, which have relatively low correlations with domestic stock portfolios. Investors may also be attracted to international funds in the popular belief that such funds can earn abnormally high returns because of the relative inefficiency of these markets. But there is little evidence that this notion is valid. ; This article sets the stage for investigating whether exploitable foreign market inefficiencies exist by studying the performance of a large sample of international open-end mutual funds during the 1990s. The analysis sorts funds into thirty-two categories and then applies four commonly used performance measures to characterize the funds' return distributions. ; The results show that a large percentage of well-diversified international funds outperform their passive benchmarks in a statistically significant manner, but regional and country funds do not. In addition, emerging markets funds exhibit volatilities that are generally higher than those of developed market funds but do not exhibit significantly higher average or abnormal returns. ; These findings indicate that the attractiveness of emerging markets investment should be revisited in more detail. The author suggests that the next step is to formulate data tests that can disentangle competing models of international capital markets and thus identify the underlying factors driving the results.

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Bibliographic Info

Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (2001)
Issue (Month): Q3 ()
Pages: 1-17

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Handle: RePEc:fip:fedaer:y:2001:i:q3:p:1-17:n:v.86no.3

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Keywords: Mutual funds;

References

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  1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
  2. Randall Morck & Bernard Yeung & Wayne Wu, 1999. "The Information Content of Stock Markets: Why do Emerging Markets have Synchronous Stock Price Movements?," William Davidson Institute Working Papers Series 44, William Davidson Institute at the University of Michigan.
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Cited by:
  1. Rui Albuquerque & Gregory Bauer & Martin Schneider, 2004. "International Equity Flows and Returns: A Quantitative Equilibrium Approach," International Finance 0405006, EconWPA.
  2. Jonathan Fletcher & Andrew Marshall, 2005. "An Empirical Examination of U.K. International Unit Trust Performance," Journal of Financial Services Research, Springer, vol. 27(2), pages 183-206, April.
  3. Gaston Gelos, 2011. "International Mutual Funds, Capital Flow Volatility, and Contagion-A Survey," IMF Working Papers 11/92, International Monetary Fund.
  4. Eling, Martin & Faust, Roger, 2010. "The performance of hedge funds and mutual funds in emerging markets," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1993-2009, August.
  5. Abel, Ernest & Fletcher, Jonathan, 2004. "An empirical examination of UK emerging market unit trust performance," Emerging Markets Review, Elsevier, vol. 5(4), pages 389-408, December.
  6. Salehizadeh, Mehdi, 2003. "U.S. multinationals and the home bias puzzle: an empirical analysis," Global Finance Journal, Elsevier, vol. 14(3), pages 303-318, December.
  7. Rui Albuquerque & Gregory Bauer & Martin Schneider, 2004. "Characterizing Asymmetric Information in International Equity Markets," International Finance 0405005, EconWPA.

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