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Performance inconsistency in mutual funds: An investigation of window-dressing behavior

Listed author(s):
  • Agarwal, Vikas
  • Gay, Gerald D.
  • Ling, Leng
Registered author(s):

    This paper develops two measures of performance inconsistency based on information derived from funds' actual performance and their disclosed portfolio holdings. Using these measures, we show that funds with unskilled managers and poor performance are associated with greater inconsistency. Further, inconsistency exhibits seasonality and relates negatively to future performance. Together, this evidence suggests that inconsistency is driven by window dressing rather than stock selection. Finally, we characterize and provide empirical support for an equilibrium of window dressing in the presence of rational investors by examining their capital allocation decisions.

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    Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 11-07 [rev.].

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    Date of creation: 2012
    Handle: RePEc:zbw:cfrwps:1107r
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    Web page: http://cfr-cologne.de/english/version06/html/home.php
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