Open AccessInvestigating Persistence in the US Mutual Fund Market: A Mobility Approach
Author(s) -
Κωνσταντίνος Δράκος,
Nicholas Giannakopoulos,
Panagiotis Theodore Konstantinou
Publication year - 2015
Publication title -
review of economic analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.101
H-Index - 1
ISSN - 1973-3909
DOI - 10.15353/rea.v7i1.1485
Subject(s) - persistence (discontinuity) , benchmark (surveying) , econometrics , markov chain , ranking (information retrieval) , economics , transition (genetics) , alpha (finance) , financial economics , mathematics , statistics , computer science , artificial intelligence , engineering , geography , descriptive statistics , biology , biochemistry , geotechnical engineering , geodesy , gene , cronbach's alpha
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.