Mutual fund selection for realistically short samples

Abstract

Performance of mutual fund selection methods is typically assessed using long samples (long time series). It is, however, very often of interest how well the methods perform in shorter samples. We carry out an extensive simulation study based on an empirically motivated skill distribution. For both short and long samples, we present evidence of large differences in performance between popular fund selection methods. In an empirical analysis, we show that the differences documented by the simulations are empirically relevant.

Will the Winner Still Be the Winner? A Study of Equity Mutual Fund Performance in Indonesia

“…We feel that the last eleven years is long enough because the mutual fund industry just started in Indonesia in 1996. This is consistent with Christiansen et al (2020) that say mutual fund performance requires a combination of data and judgment, and also consistent with Filip (2018) and Christiansen et al (2020).…”

“…Also, consistent with the finding of Hanke et al (2018) that equity funds do not have performance persistence. Moreover, this finding also supports Deb (2019), Kiymaz and Simsek (2017) and Christiansen et al (2020) found that the variation in performance persistence tends to be induced by varying the time frame is robust to weighting schemes and sample periods.…”

“…However, we find the shortcomings of Pangestuti et al (2017), Widodo and Robiyanto (2018) as they only tested the consistency of equity funds for a one-year time frame. This short-term persistence is in line with some of the previous researches (Christiansen et al, 2020;Deb, 2019;Jeon et al, 2017;Rao et al, 2017;Vidal-García et al, 2016). On the contrary, Deb (2019) finds that among the best performing growth funds and the worst-performing small-cap funds show persistence in the long run-time period (Rodriguez & Joseph McCarthy, 2015).…”