Investigating Persistence in the US Mutual Fund Market: A Mobility Approach

  • Konstantinos Drakos Athens University of Economics and Business
  • Nicholas Giannakopoulos University of Patras
  • Panagiotis Theodore Konstantinou Athens University of Economics and Business

Abstract

Performance persistence in the US mutual fund market is investigated, modeling risk-adjusted performance as a Markov Chain. This allows us to explore whether there is a higher probability for funds to remain in their initial ranking, compared to the probability that funds exhibit some kind of movement. We find some degree of inertia due to non-uniformity of transition probabilities across states. Our analysis allows also assesses the proximity of empirical transition matrices to two benchmark matrices, identifying the no-persistence/perfect immobility cases. We find that the observed transition matrices are closer to the no-persistence benchmark and also that performance persistence has decreased over time.

Author Biographies

Konstantinos Drakos, Athens University of Economics and Business

Asssociate Professor.

Department of Accounting and Finance

Athens University of Economics and Business

Nicholas Giannakopoulos, University of Patras

Assistant Professor

Department of Economics

University of Patras

Panagiotis Theodore Konstantinou, Athens University of Economics and Business

Assistant Professor.

Department of International and European Economic Studies

Athens University of Economics and Business

Published
2015-11-27
Section
Articles