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Rankings for Australian managed funds: Contrariness and performance index failure

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  • Mike Dempsey

    (Faculty of Business and Economics, PO Box 197, Monash University)

Abstract

This paper examines the persistence of return performance for Australian managed funds. Our first finding is that return performance is unstable, with a strong tendency for top-performing funds to become bottom-performing funds, and vice versa. Our second finding is that the classical measures of fund performance (Sharpe and Treynor indices) provide a more stable measure of performance, but, significantly, that such stability results from the inherent insensitivity of the performance measures to either improvements or deteriorations in a fund's return performance. We thereby are led to question the insightfulness of these standard performance indices. In seeking to clarify these issues, we apply both a Spearman rank correlation and an innovative Bayesian approach in rating Australian funds over the period between 1998 and 2004.

Suggested Citation

  • Mike Dempsey, 2009. "Rankings for Australian managed funds: Contrariness and performance index failure," Journal of Asset Management, Palgrave Macmillan, vol. 10(3), pages 138-157, August.
    • Handle: RePEc:pal:assmgt:v:10:y:2009:i:3:d:10.1057_jam.2009.8
    DOI: 10.1057/jam.2009.8
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    References listed on IDEAS

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    7. Hendricks, Darryll & Patel, Jayendu & Zeckhauser, Richard, 1993. "Hot Hands in Mutual Funds: Short-Run Persistence of Relative Performance, 1974-1988," Journal of Finance, American Finance Association, vol. 48(1), pages 93-130, March.
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    Cited by:

    1. Scott Bennett & David R. Gallagher & Graham Harman & Geoffrey J. Warren & Yuki Xi, 2018. "A new perspective on performance persistence: evidence using portfolio holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(1), pages 91-125, March.
    2. John Watson & James Delaney & Michael Dempsey & J. Wickramanayake, 2016. "Australian superannuation (pension) fund product ratings and performance: A guide for fund managers," Australian Journal of Management, Australian School of Business, vol. 41(2), pages 189-211, May.
    3. David R Gallagher & Peter A Gardner & Camille H Schmidt & Terry S Walter, 2014. "Quality investing in an Australian context," Australian Journal of Management, Australian School of Business, vol. 39(4), pages 615-643, November.

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