City Research Online

Abstract

The majority of UK style-specific mutual funds either report a broad market index as their prospectus benchmark or give no benchmark at all — a practice that may be a) strategic, or b) cultural and attributable to the lack of UK style-specific indices (e.g., mid-cap-growth, small-cap-value). The choice of a broad market index as a benchmark can bias the inferences of a fund’s performance and performance persistence. This study is the first to provide an alternative to style-specific indices in the UK, and suggests the use style-specific peer group benchmarks, following Hunter et al. (2014). Our sample comprises of 817 active UK long-only equity mutual funds allocated to nine Morningstar style categories (peer groups) during the period 1992–2016. We show that the funds with the most significant positive peer-group-adjusted alphas continued to perform well one year ahead, in terms of both parametric and non-parametric measures of persistence in performance. Moreover, persistence in performance is driven by both winner and loser funds. The results within each peer group are by and large consistent with these findings.

Publication Type:	Article
Additional Information:	This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 21 February 2019, available online: http://www.tandfonline.com/10.1080/1351847X.2019.1581639
Publisher Keywords:	UK equity mutual funds, active peer benchmark, performance ranking, performance persistence
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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