Model uncertainty, performance persistence and flows

Model uncertainty, performance persistence and flows Model uncertainty makes it difficult to draw clear inference about mutual fund performance persistence. I propose a new performance measure, Bayesian model averaged (BMA) alpha, which explicitly accounts for model uncertainty. Using BMA alphas, I find evidence of performance persistence in a large sample of US funds. There is a positive and asymmetric relation between flows and past BMA alphas, suggesting that fund investors respond to the information in BMA alphas. My findings are robust to various sensitivity analyses, including alternative measures of post-ranking performance, flows and total net assets, and alternative econometric model specifications. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Model uncertainty, performance persistence and flows

Loading next page...
 
/lp/springer_journal/model-uncertainty-performance-persistence-and-flows-vGM15MDjJD
Publisher
Springer US
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-010-0177-0
Publisher site
See Article on Publisher Site

Abstract

Model uncertainty makes it difficult to draw clear inference about mutual fund performance persistence. I propose a new performance measure, Bayesian model averaged (BMA) alpha, which explicitly accounts for model uncertainty. Using BMA alphas, I find evidence of performance persistence in a large sample of US funds. There is a positive and asymmetric relation between flows and past BMA alphas, suggesting that fund investors respond to the information in BMA alphas. My findings are robust to various sensitivity analyses, including alternative measures of post-ranking performance, flows and total net assets, and alternative econometric model specifications.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Apr 11, 2010

References

  • A quartet of semigroups for model specification, robustness, prices of risk, and model detection
    Anderson, EW; Hansen, LP; Thomas, JS
  • Stock return predictability and model uncertainty
    Avramov, D
  • Investing in mutual funds when returns are predictable
    Avramov, D; Wermers, R
  • Short-term persistence in mutual fund performance
    Bollen, NPB; Busse, JA
  • Volatility timing in mutual funds: evidence from daily returns
    Busse, JA
  • Bayesian alphas and mutual fund persistence
    Busse, JA; Irvine, PJ

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve Freelancer

DeepDyve Pro

Price
FREE
$49/month

$360/year
Save searches from
Google Scholar,
PubMed
Create lists to
organize your research
Export lists, citations
Read DeepDyve articles
Abstract access only
Unlimited access to over
18 million full-text articles
Print
20 pages/month
PDF Discount
20% off