Mutual Fund Industry Selection and Persistence

Author

Jeffrey A. BUSSE, Emory University
Qing TONG, Singapore Management UniversityFollow

Publication Type

Journal Article

Version

submittedVersion

Publication Date

7-2012

Abstract

We analyze mutual fund industry selectivity — the performance of a fund’s industry allocation relative to the market. We find that industry selection accounts for a full third of fund performance based on two-digit SIC codes, with the remaining attributable to the performance of individual stocks relative to their own industries. We find that industry-selection skill drives persistence in relative performance, particularly over longer investment horizons. Unlike individual-stock-selection ability, industry selectivity is not eroded by increasing fund assets. Our results suggest that accounting for a manager’s ability to pick outperforming industries provides information beyond standard performance measures that can enhance a fund investor’s future performance.

Keywords

mutual funds, persistence, industry selection

Discipline

Finance and Financial Management

Research Areas

Finance

Publication

Review of Asset Pricing Studies

Volume

2

Issue

2

First Page

245

Last Page

274

ISSN

2045-9939

Identifier

10.1093/rapstu/ras004

Publisher

Oxford University Press

Citation

BUSSE, Jeffrey A. and TONG, Qing. Mutual Fund Industry Selection and Persistence. (2012). Review of Asset Pricing Studies. 2, (2), 245-274.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/2956

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Additional URL

https://doi.org/10.1093/rapstu/ras004