The hazards of mutual fund underperformance: A Cox regression analysis
This 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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- Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-679, June.
- Chevalier, Judith & Ellison, Glenn, 1997.
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- William N. Goetzmann & Stephen J. Brown, 2005. "Performance Persistence," Yale School of Management Working Papers ysm451, Yale School of Management.
- Lehmann, Bruce N & Modest, David M, 1987. " Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, vol. 42(2), pages 233-265, June.
- Grinblatt, Mark & Titman, Sheridan, 1992. " The Persistence of Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 47(5), pages 1977-1984, December.
- Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-580.
- Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
- M. K. Berkowitz & Y. Kotowitz, 1993. "Incentives and Efficiency in the Market for Management Services: A Study of Canadian Mutual Funds," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 850-866, November.
- Brown, Keith C & Harlow, W V & Starks, Laura T, 1996. " Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 51(1), pages 85-110, March.
- Malkiel, Burton G, 1995. " Returns from Investing in Equity Mutual Funds 1971 to 1991," Journal of Finance, American Finance Association, vol. 50(2), pages 549-572, June.
- Han, Aaron & Hausman, Jerry A, 1990. "Flexible Parametric Estimation of Duration and Competing Risk Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(1), pages 1-28, January-M.
- 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. Full references (including those not matched with items on IDEAS)
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