Investment objectives and factors that influence the disappearance of Spanish mutual funds
Abstract
This paper analyses which variables influence the disappearance of mutual funds in the Spanish market and whether these variables vary depending on the investment objectives. The following variables are tested: age, size, investment flows, return, volatility, Sharpe ratio, Morningstar rating, and fund family. The Kaplan-Meier estimator and an extension of the Cox model, the Andersen-Gill model are used and the results indicate that the impact of some variables on survival capacity is different depending on the fund’s investment objectives. The originality of this article is twofold. The analysis of disappearance takes the investment objectives of the mutual funds into account and a new variable, the Morningstar rating, is introduced. Moreover, no previous study examines survival capacity in the Spanish market according to different investment objectives. In Spain, mutual funds are highly concentrated because most of them are in the hands of a small number of banks who also control the country’s largest fund families. This characteristic not only makes the Spanish market an interesting one for analysis, but it also means that the results of this paper are significant for mutual fund investors.
Keyword : mutual funds, investment objectives, survival capacity, Cox model, Andersen-Gill model, Spanish market
How to Cite
Barberà-Mariné, M. G. ., Fabregat-Aibar, L. ., & Terceño, A. . (2020). Investment objectives and factors that influence the disappearance of Spanish mutual funds. Journal of Business Economics and Management, 21(1), 255-276. https://doi.org/10.3846/jbem.2020.12016
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Asebedo, G., & Grable, J. (2004). Predicting mutual fund over-performance over a nine-year period. Journal of Financial Counseling and Planning, 15(1), 1–11.
Blake, C. R., & Morey, M. R. (2000). Morningstar ratings and mutual fund performance. The Journal of Financial and Quantitative Analysis, 35(3), 451–483. https://doi.org/10.2307/2676213
Boubakri, N., Karoui, A., & Kooli, M. (2014). Performance and survival of mutual funds mergers: Evidence from frequent and infrequent acquirers (Working Paper). https://doi.org/10.2139/ssrn.2375885
Brown, S., & Goetzmann, W. (1995). Perfomance persistence. The Journal of Finance, 50(2), 679–698. https://doi.org/10.1111/j.1540-6261.1995.tb04800.x
Bu, Q., & Lacey, N. (2008). On understanding mutual fund terminations. Journal of Economics and Finance, 33(1), 80–99. https://doi.org/10.1007/s12197-007-9022-2
Cameron, C., & Hall, A. D. (2003). A survival analysis of Australian equity mutual funds. Australian Journal of Management, 28(2), 209–226. https://doi.org/10.1177/031289620302800201
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Cogneau, P., & Hübner, G. (2015). The prediction of fund failure through performance diagnostics. Journal of Banking & Finance, 50, 224–241. https://doi.org/10.1016/j.jbankfin.2014.10.004
Cox, D. R. (1972). Regression models and life-tables. Journal of the Royal Statistical Society, Series B, 34(2), 187–220. https://doi.org/10.1111/j.2517-6161.1972.tb00899.x
Del Guercio, D., & Tkac, P. A. (2010). Star power: The effect of morningstar ratings on mutual fund flow. Journal of Financial and Quantitative Analysis, 43(4), 907–936. https://doi.org/10.1017/S0022109000014393
Ding, B. (2006). Mutual fund mergers: A Long-Term analysis (Working paper). https://doi.org/10.2139/ssrn.912927
Elton, E. J., & Gruber, M. J. (1996). Survivorship bias and mutual fund performance. The Review of Financial Studies, 9(4), 1097–1120. https://doi.org/10.1093/rfs/9.4.1097
Fabregat-Aibar, L., Terceño, A., & Barberà-Mariné, M. G. (2017). Analysis of the survival capacity of mutual funds: A systematic review of the literature. International Journal of Managerial Finance, 13(4), 440–474. https://doi.org/10.1108/IJMF-10-2016-0185
Filip, D. (2014). Survivorship bias and performance of mutual funds in Hungary. Periodica Polytechnica Social and Management Sciences, 22(1), 47–56. https://doi.org/10.3311/PPso.7052
Fuentelsaz, L., Gómez, J., & Polo, Y. (2004). Aplicaciones del análisis de supervivencia a la investigación en economía de la empresa. Cuadernos de Economía y Dirección de la Empresa, 19, 81–114.
Jayaraman, N., Khorana, A., & Nelling, E. (2002). An analysis of the determinants and shareholder wealth effects of mutual fund mergers. Journal of Finance, 57(3), 1521–1551. https://doi.org/10.1111/1540-6261.00468
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Khorana, A., Tufano, P., & Wedge, L. (2007). Board structure, mergers, and shareholder wealth: A study of the mutual fund industry. Journal of Financial Economics, 85(2), 571–598. https://doi.org/10.1016/j.jfineco.2006.05.002
Klein, J., & Moeschberger, M. (2003). Survival analysis. Techniques for censored and truncated data. Springer.
Kleinbaum, D., & Klein, M. (2012). Survival analysis. A self-learning text. Springer. https://doi.org/10.1007/978-1-4419-6646-9
Lapatto, A., & Puttonen, V. (2018). Life after death: acquired fund performance. Managerial Finance, 44(3), 389–402. https://doi.org/10.1108/MF-02-2017-0031
Linnainmaa, J. T. (2013). Reverse survivorship bias. The Journal of Finance, 68(3), 789–813. https://doi.org/10.1111/jofi.12030
Lunde, A., Timmermann, A., & Blake, D. (1999). The hazards of mutual fund underperformance: A Cox regression analysis. Journal of Empirical Finance, 6(2), 121–152. https://doi.org/10.1016/S0927-5398(98)00013-9
Massa, M., & Patgiri, R. (2009). Incentives and mutual fund performance: Higher performance or just higher risk taking? The Review of Financial Studies, 22(5), 1777–1815. https://doi.org/10.1093/rfs/hhn023
McLemore, P. (2019). Do mutual funds have decreasing returns to scale? Evidence from fund mergers. Journal of Financial and Quantitative Analysis, 54(4), 1683–1711. https://doi.org/10.1017/S0022109018001023
Namvar, E., & Phillips, B. (2013). Commonalities in investment strategy and the determinants of performance in mutual fund mergers. Journal of Banking and Finance, 37(2), 625–635. https://doi.org/10.1016/j.jbankfin.2012.10.001
Oehler, A., Höfer, A., Horn, M., & Wendt, S. (2018). Do mutual fund rating provide valuable information for retail investors? Studies in Economics and Finance, 35(1), 137–152. https://doi.org/10.1108/SEF-05-2017-0120
Park, M. (2013). Understanding merger incentives and outcomes in the US mutual fund industry. Journal of Banking & Finance, 37(11), 4368–4380. https://doi.org/10.1016/j.jbankfin.2013.07.048
Rohleder, M., Scholz, H., & Wilkens, M. (2011). Survivorship bias and mutual fund performance: Relevance, significance, and methodical differences. Review of Finance, 15(2), 441–474. https://doi.org/10.1093/rof/rfq023
Schoenfeld, D. (1982). Partial residuals for the proportional hazards regression model. Biometrika, 69(1), 239–241. https://doi.org/10.1093/biomet/69.1.239
Sherrill, D. E., & Stark, J. R. (2018). ETF liquidation determinants. Journal of Empirical Finance, 48, 357–373. https://doi.org/10.1016/j.jempfin.2018.07.007
Ter Horst, J. R., Nijman, T. E., & Verbeek, M. (2001). Eliminating look-ahead bias in evaluating persistence in mutual fund performance. Journal of Empirical Finance, 8(4), 345–373. https://doi.org/10.1016/S0927-5398(01)00032-9
Terceño, A., Barberà-Mariné, G. M., Fabregat-Aibar, L., & Sorrosal-Forradellas, M. T. (2018). The behaviour of non-surviving Spanish funds according to their investment objectives. In C. Berger-Vachon, A. Gil Lafuente, J. Kacprzyk, Y. Kondratenko, J. Merigó, & C. Morabito (Eds.), Complex systems: Solutions and challenges in economics, management and engineering. Studies in systems, decision and control (Vol. 125, pp. 439–450). Springer, Cham. https://doi.org/10.1007/978-3-319-69989-9_26
Zhao, X. (2005). Exit decisions in the U.S. mutual fund industry. The Journal of Business, 78(4), 1365– 1402. https://doi.org/10.1086/430863
Andersen, P. K., & Gill, R. D. (1982). Cox’s regression model for counting processes: A large sample study. The Annals of Statistics, 10(4), 1100–1120. https://doi.org/10.1214/aos/1176345976
Andreu, L., & Sarto, J. L. (2016). Financial consequences of mutual fund mergers. The European Journal of Finance, 22(7), 529–550. https://doi.org/10.1080/1351847X.2013.858055
Asebedo, G., & Grable, J. (2004). Predicting mutual fund over-performance over a nine-year period. Journal of Financial Counseling and Planning, 15(1), 1–11.
Blake, C. R., & Morey, M. R. (2000). Morningstar ratings and mutual fund performance. The Journal of Financial and Quantitative Analysis, 35(3), 451–483. https://doi.org/10.2307/2676213
Boubakri, N., Karoui, A., & Kooli, M. (2014). Performance and survival of mutual funds mergers: Evidence from frequent and infrequent acquirers (Working Paper). https://doi.org/10.2139/ssrn.2375885
Brown, S., & Goetzmann, W. (1995). Perfomance persistence. The Journal of Finance, 50(2), 679–698. https://doi.org/10.1111/j.1540-6261.1995.tb04800.x
Bu, Q., & Lacey, N. (2008). On understanding mutual fund terminations. Journal of Economics and Finance, 33(1), 80–99. https://doi.org/10.1007/s12197-007-9022-2
Cameron, C., & Hall, A. D. (2003). A survival analysis of Australian equity mutual funds. Australian Journal of Management, 28(2), 209–226. https://doi.org/10.1177/031289620302800201
Carhart, M. M. (1997). On persistence in mutual fund performance. The Journal of Finance, 52(1), 57–82. https://doi.org/10.1111/j.1540-6261.1997.tb03808.x
Cogneau, P., & Hübner, G. (2015). The prediction of fund failure through performance diagnostics. Journal of Banking & Finance, 50, 224–241. https://doi.org/10.1016/j.jbankfin.2014.10.004
Cox, D. R. (1972). Regression models and life-tables. Journal of the Royal Statistical Society, Series B, 34(2), 187–220. https://doi.org/10.1111/j.2517-6161.1972.tb00899.x
Del Guercio, D., & Tkac, P. A. (2010). Star power: The effect of morningstar ratings on mutual fund flow. Journal of Financial and Quantitative Analysis, 43(4), 907–936. https://doi.org/10.1017/S0022109000014393
Ding, B. (2006). Mutual fund mergers: A Long-Term analysis (Working paper). https://doi.org/10.2139/ssrn.912927
Elton, E. J., & Gruber, M. J. (1996). Survivorship bias and mutual fund performance. The Review of Financial Studies, 9(4), 1097–1120. https://doi.org/10.1093/rfs/9.4.1097
Fabregat-Aibar, L., Terceño, A., & Barberà-Mariné, M. G. (2017). Analysis of the survival capacity of mutual funds: A systematic review of the literature. International Journal of Managerial Finance, 13(4), 440–474. https://doi.org/10.1108/IJMF-10-2016-0185
Filip, D. (2014). Survivorship bias and performance of mutual funds in Hungary. Periodica Polytechnica Social and Management Sciences, 22(1), 47–56. https://doi.org/10.3311/PPso.7052
Fuentelsaz, L., Gómez, J., & Polo, Y. (2004). Aplicaciones del análisis de supervivencia a la investigación en economía de la empresa. Cuadernos de Economía y Dirección de la Empresa, 19, 81–114.
Jayaraman, N., Khorana, A., & Nelling, E. (2002). An analysis of the determinants and shareholder wealth effects of mutual fund mergers. Journal of Finance, 57(3), 1521–1551. https://doi.org/10.1111/1540-6261.00468
Kaplan, E., & Meier, P. (1958). Nonparametric estimator for incomplete observations. Journal of the American Statistical Association, 53(282), 457–481. https://doi.org/10.1080/01621459.1958.10501452
Khorana, A., Tufano, P., & Wedge, L. (2007). Board structure, mergers, and shareholder wealth: A study of the mutual fund industry. Journal of Financial Economics, 85(2), 571–598. https://doi.org/10.1016/j.jfineco.2006.05.002
Klein, J., & Moeschberger, M. (2003). Survival analysis. Techniques for censored and truncated data. Springer.
Kleinbaum, D., & Klein, M. (2012). Survival analysis. A self-learning text. Springer. https://doi.org/10.1007/978-1-4419-6646-9
Lapatto, A., & Puttonen, V. (2018). Life after death: acquired fund performance. Managerial Finance, 44(3), 389–402. https://doi.org/10.1108/MF-02-2017-0031
Linnainmaa, J. T. (2013). Reverse survivorship bias. The Journal of Finance, 68(3), 789–813. https://doi.org/10.1111/jofi.12030
Lunde, A., Timmermann, A., & Blake, D. (1999). The hazards of mutual fund underperformance: A Cox regression analysis. Journal of Empirical Finance, 6(2), 121–152. https://doi.org/10.1016/S0927-5398(98)00013-9
Massa, M., & Patgiri, R. (2009). Incentives and mutual fund performance: Higher performance or just higher risk taking? The Review of Financial Studies, 22(5), 1777–1815. https://doi.org/10.1093/rfs/hhn023
McLemore, P. (2019). Do mutual funds have decreasing returns to scale? Evidence from fund mergers. Journal of Financial and Quantitative Analysis, 54(4), 1683–1711. https://doi.org/10.1017/S0022109018001023
Namvar, E., & Phillips, B. (2013). Commonalities in investment strategy and the determinants of performance in mutual fund mergers. Journal of Banking and Finance, 37(2), 625–635. https://doi.org/10.1016/j.jbankfin.2012.10.001
Oehler, A., Höfer, A., Horn, M., & Wendt, S. (2018). Do mutual fund rating provide valuable information for retail investors? Studies in Economics and Finance, 35(1), 137–152. https://doi.org/10.1108/SEF-05-2017-0120
Park, M. (2013). Understanding merger incentives and outcomes in the US mutual fund industry. Journal of Banking & Finance, 37(11), 4368–4380. https://doi.org/10.1016/j.jbankfin.2013.07.048
Rohleder, M., Scholz, H., & Wilkens, M. (2011). Survivorship bias and mutual fund performance: Relevance, significance, and methodical differences. Review of Finance, 15(2), 441–474. https://doi.org/10.1093/rof/rfq023
Schoenfeld, D. (1982). Partial residuals for the proportional hazards regression model. Biometrika, 69(1), 239–241. https://doi.org/10.1093/biomet/69.1.239
Sherrill, D. E., & Stark, J. R. (2018). ETF liquidation determinants. Journal of Empirical Finance, 48, 357–373. https://doi.org/10.1016/j.jempfin.2018.07.007
Ter Horst, J. R., Nijman, T. E., & Verbeek, M. (2001). Eliminating look-ahead bias in evaluating persistence in mutual fund performance. Journal of Empirical Finance, 8(4), 345–373. https://doi.org/10.1016/S0927-5398(01)00032-9
Terceño, A., Barberà-Mariné, G. M., Fabregat-Aibar, L., & Sorrosal-Forradellas, M. T. (2018). The behaviour of non-surviving Spanish funds according to their investment objectives. In C. Berger-Vachon, A. Gil Lafuente, J. Kacprzyk, Y. Kondratenko, J. Merigó, & C. Morabito (Eds.), Complex systems: Solutions and challenges in economics, management and engineering. Studies in systems, decision and control (Vol. 125, pp. 439–450). Springer, Cham. https://doi.org/10.1007/978-3-319-69989-9_26
Zhao, X. (2005). Exit decisions in the U.S. mutual fund industry. The Journal of Business, 78(4), 1365– 1402. https://doi.org/10.1086/430863