Factors Influencing Mutual Fund Performance: A Fuzzy-set Analysis
Academic Article
Overview
Overview
Abstract
The performance of mutual funds has received endless scrutiny by a great many authors in the academic, regulatory and private sectors. All of these varied stakeholders – the university professor, the government regulator and the investor or investment manager – have an interest in better understanding mutual fund performance. Common among all of the studies we considered is an effort to shed new light on the over or under-performance of mutual funds. Each of the papers seeks to describe that performance as a function of such varied factors as the funds’ asset holdings, the funds’ age, size and management composition, or as a function of a multitude of macroeconomic factors. Traditional quantitative methods are employed by most of those earlier studies, and the likelihood of any new and significant “discoveries” seems remote. However, with the adoption of a methodology infrequently employed in studies of mutual fund performance – fuzzy-set qualitative comparative analysis or fsQCA – we have been able to affirm and extend the findings included in that library of mutual fund studies. We confirm that Morningstar ratings can be important predictors of fund performance, and that attractive risk-adjusted returns exist alongside lower management fees and reduced long-term fees. Sharpe ratios and returns are improved. These favorable outcomes often occur for funds with managers with only limited tenure. This casts the findings of other mutual fund studies in a new light. Underscoring existing work with the new fsQCA methodology is meaningful, as it extends and adds support to the earlier research.
