The Persistence of Equity Mutual Fund Performance: Further Evidence from an Emerging Economy.
Publication Date: 02/07/2024
Author(s): Adedeji D. Ajadi, Adeoye Afolabi.
Volume/Issue: Volume 7 , Issue 2 (2024)
Abstract:
This study evaluates the persistence of performance of actively managed, equity-based mutual funds in Nigeria using monthly net asset values (NAVs) of 30 funds obtained from the Securities and Exchange Commission over 10 years from 2012 to 2021. We employed a non-parametric technique based on the Contingency Table to test for performance persistence, using the Cross-Product Ratio (CPR) and the Rank Correlation statistics. Evidence shows that mutual funds do not exhibit performance persistence, and the performance of loser funds does not repeat, hence past performance does not predict future performance. Therefore, we recommend that retail investors (and their advisers) should not rely on historical performance to select mutual funds as an investment vehicle. This study provides valuable insight into the performance of actively managed funds in Nigeria and contributes to the ongoing debate about the efficiency of the financial markets and the role of active fund management. It suggests that investors might be better off with passive investment management strategies, given the lack of persistence of performance of actively managed funds.
Keywords:
Mutual Funds, Risk-Adjusted Returns, Performance Persistence, Nigeria Exchange Limited, Efficient Market Hypothesis.
