The Japanese Open-End Fund Puzzle
AbstractRecent empirical evidence has suggested that the Japanese mutual fund industry has under-performed dramatically over the past two decades. Conjectured reasons for underperformance range from tax-dilution effects to high fees, high turnover and poor asset management. In this paper, we show that this underperformance is largely due to tax-dilution effects, and not necessarily to poor management. Using a broad database of funds which includes investment trusts closed to new investment, we show that once an instrument for the time-varying tax dilution exposure is included in a factor model, there is little evidence of poor risk-adjusted performance. A style analysis of the industry demonstrates that managers appear to pursue tax-driven dynamic strategies.
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Bibliographic InfoPaper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 98-012.
Date of creation: 03 Oct 1998
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