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Rev Fin 1997; 10:237-274
© 1997 the Society for Financial Studies

Article

The performance of Japanese mutual funds

J Cai1, KC Chan and T Yamada
Department of Economics and Finance, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong
Hong Kong University of Science and Technology, Hong Kong
1 Corresponding author

Abstract

We analyze the performance of Japanese open-type stock mutual funds for the 1981-1992 period. The results show that, regardless of the performance measures and benchmarks employed, most of the Japanese mutual funds underperform the benchmarks by between 3.6% and 10.8% per annum. These funds tend to invest more in large stocks with low book-to-market ratios. But this feature does not explain the underperformance. A potential explanation is the dilution effect caused by inflows of funds. In Japan, a new investor of an open-type fund only pays in the after-tax value of the net asset value. We conduct a bootstrap experiment to assess the magnitude of this dilution effect.


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