Working Paper: NBER ID: w14355
Authors: Momtchil Pojarliev; Richard M. Levich
Abstract: We make use of a new database on daily currency fund manager returns over a three-year period, 2005-08. This higher frequency data allows us to estimate both alpha measures of performance and beta style factors on a yearly basis, which in turn allows us to test for persistence. We find no evidence to support alpha persistence; a manager's alpha in one year is not significantly related to his alpha in the prior year. On the other hand, there is substantial evidence for style persistence; funds that rely on carry, trend or value trading or with a long/short bias toward currency volatility are likely to maintain that style in the following year. In addition, we are able to examine the performance of managers that survive through the entire sample period, versus those that drop out. We find significant differences in both the investment styles of living versus deceased funds, as well as their realized alpha performance measures. We conjecture that both style differences and ineffective market timing, rather than market conditions, have impacted performance outcomes and induced some managers to close their funds.
Keywords: currency fund managers; performance persistence; style persistence; alpha; beta
JEL Codes: F31; G11; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Style differences (Y10) | Fund closure (G23) |
| Ineffective market timing (G14) | Fund closure (G23) |
| Past performance (alpha) (G11) | Future performance (D29) |
| Style persistence (D15) | Future performance (D29) |
| Surviving funds (D14) | Alpha performance (C69) |
| Surviving funds (D14) | Style alignment (Y20) |