What Explains Mutual Fund Performance Persistence? International Evidence (original) (raw)

We study performance persistence and its determinants using a sample of equity mutual funds across 22 countries. Consistent with the predictions of the Berk and Green (2004) model, we find that flow-performance sensitivity decreases persistence in the presence of decreasing returns to scale. However, in the presence of increasing returns to scale, the strength of the flow reaction to past performance enhances persistence. Additionally, we find that fund industry competitiveness decreases persistence among winners and enhances persistence among losers. Our findings suggest that tests of performance persistence conducted without considering returns to scale or the level of competitiveness present in the industry being examined may lead to incorrect conclusions about the presence of managerial skill in that context. JEL Classification: G15; G23