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Performance and market share: Evidence from the German mutual fund industry

Listed author(s):
  • Krahnen, Jan Pieter
  • Schmid, Frank A.
  • Theissen, Erik

In this paper we analyze the relation between fund performance and market share. Using three performance measures we first establish that significant differences in the risk-adjusted returns of the funds in the sample exist. Thus, investors may react to past fund performance when making their investment decisions. We estimated a model relating past performance to changes in market share and found that past performance has a significant positive effect on market share. The results of a specification test indicate that investors react to risk-adjusted returns rather than to raw returns. This suggests that investors may be more sophisticated than is often assumed.

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File URL: https://www.econstor.eu/bitstream/10419/78054/1/755485785.pdf
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Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 1997/01.

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Date of creation: 1997
Handle: RePEc:zbw:cfswop:199701
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  1. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, May.
  2. 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.
  3. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
  4. Droms, William G. & Walker, David A., 1996. "Mutual fund investment performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(3), pages 347-363.
  5. Lakonishok, Joseph & Shleifer, Andrei & Vishny, Robert W., 1992. "The Structure and Performance of the Money Management Industry," Scholarly Articles 10498059, Harvard University Department of Economics.
  6. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-793, May.
  7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
  8. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  9. Warther, Vincent A., 1995. "Aggregate mutual fund flows and security returns," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 209-235.
  10. Edwards,Jeremy & Fischer,Klaus, 1996. "Banks, Finance and Investment in Germany," Cambridge Books, Cambridge University Press, number 9780521566087, December.
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