Mutual Funds Essay

However, when those linkages remain from one period to another, we can consider that the returns of the funds are not correlated by chance and we expect to find persistence.

Finally, we consider how correlation across funds can help to explain herd behavior in the mutual fund industry.

Do the characteristics of the mutual fund network help to explain the performance of mutual funds?

Is the position of a mutual fund in the network related to persistence of abnormal performance of the fund?

Funds respond by cutting down on costly disclosures and advertising activities.

Mutual Funds Essay

Thus competition seems to have adverse impact on market transparency and search cost.

We argue that managers with different types of information will invest differently.

In the same line of argument, managers with access to only free public information and poor private information should behave similarly, and their investments should perform close to the market, while managers of the type that holds quality private information should outperform the market.

If there are informational linkages, those connections could help to test for persistence.

Then, we expect that the returns of those funds will be correlated to each other; if the returns of those funds were correlated by luck, it is expected that in the next period, those linkages will disappear.


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