News from Cass Business School

The mutual fund lottery

The growing importance of commercial investment vehicles

Wednesday, 3 November, 2010

As the emphasis for 'life costs' such pensions and tuition fees becomes more onerous and shifts from the state to the individual so commercial investment vehicles, such as mutual funds, will become more important. However, according to Dr Dirk Nitzsche in this week's Cass Talks the success of these funds is often more a matter of luck than skill.
Dr Nitzsche, and his co-authors, used a bootstrapping methodology to assess whether the success of a mutual fund can be explained by skill or luck and found that the vast majority of successful funds are just lucky, while on the other end of the spectrum the poorly performing funds are administered so badly that they present a serious risk to investors.
One resource used by investors to inform their investment tactics is the fund performance league tables. However there is very little evidence to suggest that the historical performance of a fund has any influence on its future success. Dr Nitzsche closes by stressing that as they grow in prominence the regulator will have to more closely monitor the fee structures for commercial investment products in order to protect consumers.
The Cass Talks interviews are an opportunity to hear Cass faculty and prominent alumni give their perspective on current business and finance news stories, global issues affecting the business world and new research coming out of the School. Listen, watch and download Cass Talks and see other Cass academics share their opinions at: ww.cass.city.ac.uk/casstalks

Permanent link to this story: https://www.cass.city.ac.uk/news-and-events/news/2010/november/the-mutual-fund-lottery
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