Performance of international and global equity mutual funds: Do country momentum and sector momentum matter?

Performance of Foreign and Global Mutual Funds: The Role of Security Selection, Region‐Shifting, and Style‐Shifting Abilities

“…The number of funds with negative abnormal returns also increases in the regional market and principal component models. Our observation is consistent with the findings by Breloer, Scholz and Wilkens () and Comer and Rodriguez () that the abnormal returns of global and foreign funds are reduced when funds' regional and style exposure is considered.…”

“…the regional market and principal component models. Our observation is consistent with the findings by Breloer, Scholz and Wilkens (2014) and Comer and Rodriguez (2012) that the abnormal returns of global and foreign funds are reduced when funds' regional and style exposure is considered. Amihud and Goyenko (2013) study domestic equity funds and find that (1 − R 2 ) is positively correlated with Jensen's alpha and is a proxy for the fund's security selection ability.…”

“…For instance, Cumby and Glen (1990) use Jensen's alpha and positive period weighting measure to compare the performance of 15 U.S.-based internationally diversified mutual funds to a broad market index and do not find evidence of positive abnormal returns. Similarly, Breloer, Scholz and Wilkens (2014) and Comer and Rodriguez (2012) find negative average abnormal returns earned by foreign and global funds. By contrast, Detzler and Wiggins (1997) find that international mutual funds outperform the inefficient world index.…”

“…Similarly, to construct daily returns to the book-to-market factor, we subtract return of growth market index from that of value market index for each region and take the average of the regional differences. 5 We use the method proposed by Breloer, Scholz and Wilkens (2014) to construct the daily return to the momentum factor. For each quarter, we consider 45 MSCI country indices and sort them according to their average daily returns in the past quarter.…”

“…They find that, contrary to the evidence that funds on average have positive abnormal returns when the global Morgan Stanley Capital International (MSCI) index is used as a benchmark, abnormal returns turn out to be significantly negative after controlling for funds' regional exposure. Additionally, Breloer, Scholz and Wilkens () show that although momentum is an important factor, it is often omitted in the performance evaluation of foreign and global funds (see also, Banegas, Gillen, Timmermann and Wermers, ). They find the inclusion of the momentum factor can significantly reduce the abnormal returns of foreign and global funds.…”