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Starting on the wrong foot: Seasonality in mutual fund performance

Author

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  • Brown, Stephen J.
  • Sotes-Paladino, Juan
  • Wang, Jiaguo(George)
  • Yao, Yaqiong

Abstract

We document a systematic seasonal component in the aggregate underperformance of active mutual funds. At the aggregate level, active funds underperform the market and other passive benchmarks only in the first month of a quarter. This intra-quarter performance seasonality holds across fund sizes and investment styles. The pattern is consistent with short-term stock return reversal effects along with aggregate window-dressing and, to a lesser extent, NAV-inflation practices around quarter-ends. We find marginal or no evidence of microstructure biases, fund investor flows, or cash distributions as sources of this seasonality. Our findings highlight new features of the active management underperformance puzzle.

Suggested Citation

  • Brown, Stephen J. & Sotes-Paladino, Juan & Wang, Jiaguo(George) & Yao, Yaqiong, 2017. "Starting on the wrong foot: Seasonality in mutual fund performance," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 133-150.
    • Handle: RePEc:eee:jbfina:v:82:y:2017:i:c:p:133-150
    DOI: 10.1016/j.jbankfin.2017.05.013
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    More about this item

    Keywords

    Mutual funds; Performance evaluation; Seasonality; Benchmark index;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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