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Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/57727
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| Title: | | Investing in mutual funds when returns are predictable  |
| Authors: | | Avramov, Doron Wermers, Russ |
| Issue Date: | | 2005 |
| Series/Report no.: | | CFR Working Paper 05-13 |
| Abstract: | | This paper analyzes the performance of portfolio strategies that invest in noload, open-end U.S. domestic equity mutual funds, incorporating predictability in (i) manager skills, (ii) fund risk-loadings, and (iii) benchmark returns. Predictability in manager skills is found to be the dominant source of investment profitability - long-only strategies that incorporate such predictability considerably outperform prior-documented hot-hands and smart-money strategies, and generate positive and significant performance with respect to the Fama-French and momentum benchmarks. Specifically, these strategies outperform their benchmarks by 2-4% per year through their ability to time industries over the business cycle. Moreover, they choose individual funds that outperform their industry benchmarks to achieve an additional 3-6% per year. Overall, our findings indicate that industries are important in locating outperforming mutual funds, and that active management adds much more value than documented by prior studies. |
| Document Type: | | Working Paper |
| Appears in Collections: | | CFR Working Papers, Centre for Financial Research (CFR), Universität Köln
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