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The performance of the Italian mutual funds: Does the metric matter?


  • Venanzi, Daniela


This paper discusses the differences among performance metrics in the Italian mutual fund industry. This industry is worthy of interest because it presents two characteristics (representative of other Continental Europe countries, less analyzed than Anglo-Saxon ones) that weaken the importance of the time-weighted approach: a dominant role of the sellers and a significant vertical integration between production and distribution. Based on an original dataset, never used before by any scholar, we simulate (by using a Monte Carlo simulation model) the dynamics of returns and cash flows in the 2003–2010 period, analyzing the metric spreads and their sensitivity to scenarios’ characteristics (volatility and timing of returns, entity and volatility of subscriptions and withdrawals). The empirical findings suggest that metrics matter. In fact, spreads between time-weighted and money-weighted returns are significant at level of individual funds in the simulated scenarios (consistent with the dynamics of the Italian industry in the considered period), while are not significant when we consider aggregated data, since aggregation smooths the volatility of flows and returns. The analysis suggests that it would be useful: (i) to rethink asset managers’ choices in terms of performance measurement; (ii) to provide all the measures of return that could satisfy the broad spectrum of interested parties and assessment purposes.

Suggested Citation

  • Venanzi, Daniela, 2016. "The performance of the Italian mutual funds: Does the metric matter?," Research in International Business and Finance, Elsevier, vol. 37(C), pages 406-421.
  • Handle: RePEc:eee:riibaf:v:37:y:2016:i:c:p:406-421
    DOI: 10.1016/j.ribaf.2016.01.002

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    References listed on IDEAS

    1. Brau, James C. & Rodríguez, Javier, 2009. "An empirical analysis of Mexican and US closed-end mutual fund IPOs," Research in International Business and Finance, Elsevier, vol. 23(1), pages 1-17, January.
    2. Vidal-García, Javier, 2013. "The persistence of European mutual fund performance," Research in International Business and Finance, Elsevier, vol. 28(C), pages 45-67.
    3. Ilia D. Dichev, 2007. "What Are Stock Investors’ Actual Historical Returns? Evidence from Dollar-Weighted Returns," American Economic Review, American Economic Association, vol. 97(1), pages 386-401, March.
    4. Roberto Casarin & Andrea Piva & Loriana Pelizzon, 2008. "Italian Equity Funds: Efficiency and Performance Persistence," The IUP Journal of Financial Economics, IUP Publications, vol. 0(1), pages 7-28, March.
    5. Cesari, Riccardo & Panetta, Fabio, 2002. "The performance of Italian equity funds," Journal of Banking & Finance, Elsevier, vol. 26(1), pages 99-126, January.
    6. Ken Johnston & John Hatem & Thomas A. Carnes, 2010. "Investor education: how plan sponsors should report your returns," Managerial Finance, Emerald Group Publishing, vol. 36(4), pages 354-363, April.
    7. Ippolito, Richard A, 1992. "Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 45-70, April.
    8. Oueslati, Abdelmonem & Hammami, Yacine & Jilani, Faouzi, 2014. "The timing ability and global performance of Tunisian mutual fund managers: A multivariate GARCH approach," Research in International Business and Finance, Elsevier, vol. 31(C), pages 57-73.
    9. Friesen, Geoffrey C. & Sapp, Travis R.A., 2007. "Mutual fund flows and investor returns: An empirical examination of fund investor timing ability," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2796-2816, September.
    10. Hammami, Yacine & Jilani, Faouzi & Oueslati, Abdelmonem, 2013. "Mutual fund performance in Tunisia: A multivariate GARCH approach," Research in International Business and Finance, Elsevier, vol. 29(C), pages 35-51.
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    Cited by:

    1. Guzzetti, Marco, 2020. "Approximating the time-weighted return: The case of flows at unknown time," Insurance: Mathematics and Economics, Elsevier, vol. 90(C), pages 25-34.

    More about this item


    Mutual fund performance; Money-weighted returns; Time-weighted returns; Italian mutual fund industry; Simulation model of spreads between metrics;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage


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