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Persistence of mutual fund operating characteristics: returns, turnover rates, and expense ratios

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  • William Droms
  • David Walker

Abstract

This study tests persistence of mutual fund returns, turnover rates, and expense ratios over the 20-year period from 1971 to 1990. Multivariate models also are developed to examine synergies among persistence of returns, expense ratios and turnover rates. Potential long-run economies of scale are analysed by determining whether or not there is a significant relationship between asset size and these other operating characteristics. Tests are developed to contrast the decade of the 1970s with the decade of the 1980s and to examine persistence between consecutive years. The results indicate that there was no long-term persistence of returns, expenses, or turnover rates for 151 equity mutual funds that operated over the full two decades from 1971 to 1990. Tests of short-term performance persistence show strong persistence of good performance for periods of one, two and three years. For a four-year time period, there is no significant persistence of returns. The tests for consecutive years in contrast to tests between decades show that there is short-term, but not long-term persistence for returns.

Suggested Citation

  • William Droms & David Walker, 2001. "Persistence of mutual fund operating characteristics: returns, turnover rates, and expense ratios," Applied Financial Economics, Taylor & Francis Journals, vol. 11(4), pages 457-466.
    • Handle: RePEc:taf:apfiec:v:11:y:2001:i:4:p:457-466
    DOI: 10.1080/096031001300314018
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    References listed on IDEAS

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    1. 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.
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    Cited by:

    1. Christensen, Michael, 2005. "Danish Mutual Fund Performance - Selectivity, Market Timing and Persistence," Finance Research Group Working Papers F-2005-01, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    2. Carlos F. Alves & Victor Mendes, 2006. "Are mutual fund investors in jail?," FEP Working Papers 203, Universidade do Porto, Faculdade de Economia do Porto.
    3. Makni, Rania & Benouda, Olfa & Delhoumi, Ezzedine, 2016. "International evidence on Islamic equity fund characteristics and performance persistence," Review of Financial Economics, Elsevier, vol. 31(C), pages 75-82.
    4. Luis Vicente & Luis Ferruz, 2005. "Performance persistence in Spanish equity funds," Applied Financial Economics, Taylor & Francis Journals, vol. 15(18), pages 1305-1313.
    5. Chris GROSE & Theodoros KARGIDIS, 2012. "Persistence In Performance For Mutual Funds In Periods Of Crisis," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 11(1), pages 85-98.
    6. Basu, Anup K. & Huang-Jones, Jason, 2015. "The performance of diversified emerging market equity funds," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 35(C), pages 116-131.
    7. Rania Makni & Olfa Benouda & Ezzedine Delhoumi, 2016. "International evidence on Islamic equity fund characteristics and performance persistence," Review of Financial Economics, John Wiley & Sons, vol. 31(1), pages 75-82, November.
    8. Chris Bilson & Angela Frino & Richard Heaney, 2005. "Australian retail fund performance persistence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 45(1), pages 25-42, March.
    9. Ling, Aifan & Huang, Xinrui & Ling, Boya (Vivye), 2022. "Fund immunity to the COVID-19 pandemic: Evidence from Chinese equity funds," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    10. Angela Frino & Richard Heaney & David Service, 2005. "Do Past Performance and Past Cash Flows Explain Current Cash Flows into Retail Superannuation Funds in Australia?," Australian Journal of Management, Australian School of Business, vol. 30(2), pages 229-244, December.
    11. Matallín-Sáez, Juan Carlos & Soler-Domínguez, Amparo & Tortosa-Ausina, Emili, 2016. "On the robustness of persistence in mutual fund performance," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 192-231.
    12. Luo Wang & Bin Li & Rakesh Gupta & Jen-Je Su & Benjamin Liu, 2017. "Return Predictability in Australian Managed Funds," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 16(1), pages 1-19, June.

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