Selecting Australian equity superannuation funds: A retail investor's perspective
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Michael E. Drew is a senior lecturer of Finance at the School of Economics and Finance, Queensland University of Technology, Brisbane, Australia. He holds a PhD in financial economics from University of Queensland, Australia. His research interests are in the areas of fund manager evaluation, superannuation, impact of asset allocation and selection decisions on fund performance and asset pricing in emerging markets. He is also an Associate of the Securities Institute of Australia.
Jon D. Stanford is a senior lecturer of Economics at the School of Economics, University of Queensland, Brisbane, Australia. His research interests are in the area of monetary and financial economics and economic policy and include economics of emerging financial markets, prudential regulation of financial institutions, economic analysis of legal rules and the new Global Financial Architecture and the economics of superannuation. He is President of the Economic Society of Australia (Qld) Inc. and a member of the Editorial Board of JASSA (The Journal of the Securities Institute of Australia).
Madhu Veeraraghavan is a lecturer of Finance at the School of Accounting and Finance, Griffith University, Gold Coast Campus, Australia. He holds a PhD in finance from Griffith University, Australia. His research interests are in the area of empirical and theoretical asset pricing, evaluating portfolio performance and behavioural finance. He has recently accepted a position as senior lecturer in the Department of Accounting and Finance at the Auckland Business School, University of Auckland.
Abstract In this performance persistence study, two questions are addressed. First, what is the relationship between past fund returns and future performance? Secondly, does a ‘hot hand’ fund selection system deliver economically significant returns to investors? Using a sample of Australian equity superannuation funds over the 1990s, the answers from this study are as follows: on a raw and risk-adjusted return basis the authors find evidence of mean reversion, with prior annual performance having little influence on future fund return. Selecting funds based on a persistence strategy resulted in underperformance of industry and passive returns for the retail superannuation investor over the sample period. The findings of the study have serious implications for financial planning advisers who market superannuation funds based on past performance. The results suggest that previous annual performance has little influence on future returns. Keywords
Jon D. Stanford School of Economics, University of Queensland, Brisbane, Queensland, 4072, Australia. Tel: +61 7 3365 6594; e-mail: [email protected]. edu.au
Superannuation funds, Australia, performance persistence, past performance
INTRODUCTION ‘Does active investment management add value?’ This question has been the source of continued debate in financial economics since the contributions of Sharpe,1
# Henry Stewart Publications 1479–1846 (2002)
Vol. 7, 2 115–128
Treynor2 and Jensen.3 One strand of literature finds that inves
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