The Performance of European Equity Mutual Funds
(with Ayelen Banegas, Allan Timmermann, and Russ Wermers)
Despite significant growth in the European mutual fund industry and the integration of European financial markets during recent years, the performance of European equity mutual funds is largely an unexplored area of research. This paper shows that macroeconomic state variables can be used to identify a significant time-varying alpha component among a large sample of funds with a Pan-European, European country, or European sector focus. Specifically, the default yield spread, term spread, dividend yield, and short interest rate, as well as macroeconomic variables tracking consumer price inflation and economic sentiment prove valuable in identifying, ex-ante, funds with superior performance. Most of the alpha that these state variables generate comes from their ability to identify superior Pan-European funds, as well as to generate returns from country selection.
Link:
http://www.econ.ucsd.edu/~bgillen/papers/EuroFundPredictability.pdf
