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

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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

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

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