By Peter Lückoff
Stronger funding functionality is the last word goal of mutual fund traders. although, earlier fund functionality isn't any trustworthy indicator of destiny functionality. Peter L??ckoff investigates why fund flows and supervisor alterations act as equilibrium mechanisms and force the functionality of either formerly outperforming and formerly under-performing cash again to standard degrees. those effects have very important implications for traders, funding administration businesses and regulators.
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Extra info for Mutual Fund Performance and Performance Persistence
Therefore, a comprehensive analysis of mutual fund performance and the value of active management needs to take real-world frictions into account. With respect to the ﬁrst question, agency conﬂicts can help to explain this observation. Fund managers might maximize their own wealth rather than maximizing investors’ returns. Moreover, the eﬀects of fund ﬂows and associated transaction costs have been put forward in the literature as a potential explanation for average underperformance (Edelen, 1999; Alexander, Cici, and Gibson, 2007).
This depends on the behavior of other investors with respect to information acquisition and trading. According to Grossman and Stiglitz (1980), the more information is already reﬂected in the price of a security the lower the gain to be made from acquiring additional information regarding this company. However, Barlevi and Veronesi (2000) argue that if the impact of noise on security prices is relatively high, for example induced by a high degree of liquidity-induced trading, the incentive to gather information individually might even increase in the level of aggregate information processing.
This is discussed in more detail in chapter 2. However, despite its importance in investor protection it is not clear whether an eﬃcient product market alone assures a good governance: “While we agree that product market competition is probably the most powerful force toward economic eﬃciency in the world, we are skeptical that it alone can solve the problem of corporate governance” (Shleifer and Vishny, 1997, p. 738). This is discussed in more detail in chapter 4. P. 1: Integrated framework of active mutual fund management This ﬁgure presents the integrated framework developed in this work.
Mutual Fund Performance and Performance Persistence by Peter Lückoff