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Style, Fees and Performance of Italian Equity Funds

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Author Info

  • Riccardo Cesari

    (University of Bologna, Department of Economics)

  • Fabio Panetta

    ()
    (Bank of Italy, Economic Research Department)

Abstract

Using a clustering procedure,we classify Italian funds ex-post on the basis of the composition of their portfolios and find that the optimal number of clusters is equal to 4. The four groups which result from the statistical classification closely match the 4-level aggregation of the 20 ex-ante categories used by the Italian mutual funds association. We then estimate the risk-adjusted performance of Italian equity funds, using both net and gross returns and employing both one-factor CAPM benchmarks and multi-factor benchmarks. In addition to the standard Jensen's a, we measure risk-adjusted performance using the Positive Period Weighting measure (PPW), which is not influenced by managers' market-timing strategy.Using net returns (calculated after management fees and taxes but before load fees) the Italian equity funds' performance is not significantly different from zero. However, when the funds'performance is evaluated on the basis of gross returns (i.e.returns computed adding back management fees paid each year by the funds), the performance of the Italian equity funds is always positive. In particular, when both a 2-index benchmark that takes account of the funds' investments in government bonds and a 5-factor APT benchmark are considered, performance is positive and significant using both Jensen's a and the PPW. This result supports Grossman and Stiglitz's (1980) view of market efficiency, suggesting that informed investors (investment funds) are compensated for their information gathering.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 325.

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Date of creation: Jan 1998
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Handle: RePEc:bdi:wptemi:td_325_98

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Keywords: mutual funds; performance measures; investment style; management fees; market timing;

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  1. Gregory Connor and Robert A. Korajczyk., 1988. "The Attributes, Behavior and Performance of U.S. Mutual Funds," Research Program in Finance Working Papers 181, University of California at Berkeley.
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Cited by:
  1. Luigi Guiso & Tullio Jappelli, 2002. "Stockholding in Italy," CSEF Working Papers 82, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  2. Loriana Pelizzon & Roberto Casarin & Andrea Piva, 2008. "Italian Equity Funds: Efficiency and Performance Persistence," Working Papers 2008_12, Department of Economics, University of Venice "Ca' Foscari".
  3. Annaert, Jan & van den Broeck, Julien & Vander Vennet, Rudi, 2003. "Determinants of mutual fund underperformance: A Bayesian stochastic frontier approach," European Journal of Operational Research, Elsevier, vol. 151(3), pages 617-632, December.
  4. Luigi Guiso & Tullio Jappelli, 2000. "Household Portfolios in Italy," CSEF Working Papers 43, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  5. Brandolini, A., 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Date Quality, and the Time Pattern of Income Inequality," Papers 350, Banca Italia - Servizio di Studi.
  6. Anolli, Mario & Del Giudice, Alfonso, 2008. "Italian Open End Mutual Fund Costs," MPRA Paper 8111, University Library of Munich, Germany.

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