The Hazards of Mutual Fund Underperformance: A Cox Regression Analysis
AbstractThis paper investigates the process determining mutual funds conditional probability of closure, i.e. their hazard function. Using a nonparmetric approach to estimate the effects of a funds age on its hazard rate, we find a distinctly nonlinear, inverse U-shaped pattern in the relationship. Hence young and very old funds are least likely to be closed down. A funds relative performance and (less significantly) the level of return in the sector in which the fund operates are also identified as important factors in the closure decision. Results from semiparametric Cox regressions aaaare compared with those from the discrete choice probit model used by Brown and Goetzmann (1995). Finally, we provide a complete summary of the fund attrition process by estimating the survivor function, indicating the proportion of funds that survive up to a given age, and we identify the effect of fund attrition on standard measure of persistence of fund performance.
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Date of creation: Sep 1998
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- Lunde, Asger & Timmermann, Allan & Blake, David, 1999. "The hazards of mutual fund underperformance: A Cox regression analysis," Journal of Empirical Finance, Elsevier, vol. 6(2), pages 121-152, April.
- Lunde, Asger & Timmermann, Allan & Blake, David, 1998. "The Hazards of Mutual Fund Underperformance: A Cox Regression Analysis," University of California at San Diego, Economics Working Paper Series qt1pd3z1hm, Department of Economics, UC San Diego.
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