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The prediction of fund failure through performance diagnostics

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  • Cogneau, Philippe
  • Hübner, Georges

Abstract

Using an international database featuring 1624 mutual funds over 15years, this paper analyses the joint abilities of performance measures to predict subsequent fund failure. We examine the probability of disappearance over a time window, and expected fund survival time, and study the circumstances of a fund’s disappearance, its currency and domicile. By combining relevant measures, fund failure appears to a significant extent predictable, more than with single classical measures. Survivorship predictability has significant economic value. Such evidence suggests that past performance does not only influence investors’ perception of fund quality, but also reflects managers’ ability to sustain performance.

Suggested Citation

  • Cogneau, Philippe & Hübner, Georges, 2015. "The prediction of fund failure through performance diagnostics," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 224-241.
    • Handle: RePEc:eee:jbfina:v:50:y:2015:i:c:p:224-241
    DOI: 10.1016/j.jbankfin.2014.10.004
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    Cited by:

    1. Sally G. Arcidiacono & Damiano Rossello, 2022. "A hybrid approach to the discrepancy in financial performance’s robustness," Operational Research, Springer, vol. 22(5), pages 5441-5476, November.
    2. Chen, Hong-Yi & Chen, Hsuan-Chi & Lai, Christine W., 2021. "Internet search, fund flows, and fund performance," Journal of Banking & Finance, Elsevier, vol. 129(C).
    3. Laura Fabregat-Aibar & Maria-Teresa Sorrosal-Forradellas & Glòria Barberà-Mariné & Antonio Terceño, 2021. "Can Artificial Neural Networks Predict the Survival Capacity of Mutual Funds? Evidence from Spain," Mathematics, MDPI, vol. 9(6), pages 1-10, March.
    4. Zalewska, Anna (Ania) & Zhang, Yue, 2020. "Mutual funds' exits, financial crisis and Darwin," Journal of Corporate Finance, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Fund survival; Performance measurement; Persistence analysis; Mutual funds;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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