Long-run consistency in mutual fund performance
Mutual funds are a major form of financial intermediation and one of the most popular investment vehicles for the household investor. Today the totals of these funds held in money market, bond and equity assets exceed $3.5 trillion with more than 27 percent of American households invested in one or more of the three types of funds. Equity funds, or those funds investing exclusively in common stocks, account for $1.75 trillion. The largest number of these funds are of the open-end type, which are bought and sold at net asset value (less any applicable sales or redemption charges), providing excellent liquidity for the shareholder. The funds are professionally managed so that the investor is relieved and removed from the responsibility of constructing the portfolio and is, unlike direct investors, a price taker who can hold or liquidate a position in the fund, but has no control over the fund price or the prices of individual securities held in the fund's portfolio. The skill of the fund manager and the manager's actions determine the relative success of fund performance. This dissertation explores relative fund performance over time. The remainder of this chapter is divided into sections: (1.1) a brief discussion of mutual fund utility, (1.2) a discussion of the different strains of mutual fund research, (1.3) a discussion of consistency in fund perfomnance, (1.4) a discussion of research questions examined in this dissertation, (1.5) a discussion of statistical definitions of consistent performance and (1.6) a chapter summary.