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Another Look at Mutual Fund Tournaments

Published online by Cambridge University Press:  06 April 2009

Jeffrey A. Busse
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Abstract

Daily retutns are used to examine how mutual funds actively alter the risk of their portfolios in response to past performance. Compared to monthly data, daily returns produce much more efficient estimates of fund volatility, which give vastly different inferences about the behavior of fund managers. In particular, monthly results consistent with under-performers increasing their risk relative to better performing funds disappear with daily data. The differences in the monthly and daily results arise from biases in the monthly volatility estimates attributable to daily return autocorrelation.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 36 , Issue 1 , March 2001 , pp. 53 - 73
Copyright
Copyright © School of Business Administration, University of Washington 2001

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Footnotes

*

Goizueta Business School, Emory University, 1300 Clifton Rd., Atlanta, GA 30322–2722, email: Jeff_Busse@bus.meoty.edu. I especially appreciate the helpful comments of Wayne Ferson (associate editor and referee). I also appreciate the comments of Viral Acharya, Edwin Elton, Young Ho Eom, Martin Gruber, Anthony Lunch, Paul Malatesta (the editor), Lubos Pastor, Matthew Richardson, Charles Trzcinka, University of North Carolina, and the 1998 European Finance Association meetings.

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