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The performance of European equity mutual funds

Banegas, Ayelen
Gillen, Ben
Timmermann, Allan
Wermers, Russ
Year of Publication: 
Series/Report no.: 
CFR working paper 09-03
Despite the significant growth in the European fund industry in recent years, the performance of European equity mutual funds is a largely unexplored area of research. This paper shows that macroeconomic state variables can be used to identify a significant time-varying alpha component among a large sample of Pan-European, European country and sector funds. State variables such as the default yield spread, the term spread, the dividend yield and the short risk-free rate as well as macroeconomic variables tracking consumer price in ation and economic sentiment prove valuable in ex-ante identification of superior performance among funds. Most of the alpha that these state variables help produce comes from their ability to select superior Pan-European funds and generate returns from country selection.
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