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Measuring Alpha in the Fund Management Industry: Do Female Managers Perform Better?

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  • Vassilis Babalos
  • Guglielmo Maria Caporale
  • Nikolaos Philippas

Abstract

This paper examines the performance of 358 European diversified equity mutual funds controlling for gender differences. Fund performance is evaluated against funds’ designated market indices and representative style portfolios. Consistently with previous studies, no significant differences in performance and risk are found between female and male managed funds. However, perverse market timing manifests itself mainly in female managed funds and in the left tail of the returns distribution. Interestingly, at fund level there is evidence of significant overperformance that survives even after accounting for funds’ exposure to known risk factors. Employing a quantile regression approach reveals that fund performance is highly dependent on the selection of the specific quantile of the returns distribution; also, style consistency for male and female managers manifests itself across different quantiles. These results have important implications for fund management companies and for retail investors’ asset allocation strategies.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4275.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4275

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Keywords: mutual funds; performance; timing; gender difference; quantile regression;

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  1. Niessen, Alexandra & Ruenzi, Stefan, 2007. "Sex matters: Gender differences in a professional setting," CFR Working Papers, University of Cologne, Centre for Financial Research (CFR) 06-01, University of Cologne, Centre for Financial Research (CFR).
  2. Lehmann, Bruce N & Modest, David M, 1987. " Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, American Finance Association, vol. 42(2), pages 233-65, June.
  3. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  4. Prather, Laurie & Bertin, William J. & Henker, Thomas, 2004. "Mutual fund characteristics, managerial attributes, and fund performance," Review of Financial Economics, Elsevier, Elsevier, vol. 13(4), pages 305-326.
  5. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 33-50, January.
  6. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, American Finance Association, vol. 51(1), pages 55-84, March.
  7. Jha, Ranjini & Korkie, Bob & Turtle, Harry J., 2009. "Measuring performance in a dynamic world: Conditional mean-variance fundamentals," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(10), pages 1851-1859, October.
  8. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, American Finance Association, vol. 53(5), pages 1589-1622, October.
  9. Golec, Joseph H., 1996. "The effects of mutual fund managers' characteristics on their portfolio performance, risk and fees," Financial Services Review, Elsevier, Elsevier, vol. 5(2), pages 133-147.
  10. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, American Finance Association, vol. 23(2), pages 389-416, 05.
  11. Bruce N. Lehmann & David M. Modest, 1985. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," NBER Working Papers 1721, National Bureau of Economic Research, Inc.
  12. Roger Otten & Dennis Bams, 2002. "European Mutual Fund Performance," European Financial Management, European Financial Management Association, European Financial Management Association, vol. 8(1), pages 75-101.
  13. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1996. "The Persistence of Risk-Adjusted Mutual Fund Performance," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 69(2), pages 133-57, April.
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