FIN-01-019

An analysis of the relative performance of Japanese and foreign money management

October 2001

Stephen J. Brown, William N. Goetzmann, Takato Hiraki and Noriyoshi Shiraishi

ABSTRACT

Foreign investment management firms have recently started to play a major role in the investment trust business in Japan. In terms of assets under management, their size and market share have almost doubled in the past two years. In part, the relative success of foreign managed firms in attracting market share may be attributed to the fact that Japanese investment trusts have underperformed benchmarks in quite a dramatic fashion over the past two decades. This is at best indirect evidence that Japanese funds underperform their foreign counterparts. In a recent paper (Brown, Goetzmann, Hiraki, Otsuki and Shiraishi 2001) we show that the underperformance can be attributed almost entirely to the unique tax environment of Japanese investment trusts. In this paper we examine the relative performance issue directly by looking at week by week returns for the period January 23, 1998 through to January 14, 2000. Contrary to popular perception, Japanese managers actually outperformed their foreign counterparts over this period of time. Perhaps this indicates that Japanese managers are more skillful. However, the evidence suggests that they happened to be in the right place at the right time. We attribute the superior performance to the asset allocation decision, rather than to any superior skill in selecting securities.

Stephen J. Brown
Institution: Stern School of Business, New York University, 44th West 4th Street, New York, NY 10012
Telephone: 212-998-0306
Fax: 212-995-4233
Email: sbrown@stern.nyu.edu
Homepage: http://www.stern.nyu.edu/~sbrown/

William N. Goetzmann,
Institution: Yale School of Management, Box 208200, 135 Prospect Street, New Haven CT 06520-8200
Telephone: 203-432-5950
Fax: 203-432-8931
Email: william.goetzmann@yale.edu

Takato Hiraki
Institution: International University of Japan, Graduate School of International Management

Noriyoshi Shiraishi
Institution: Rikkyo University

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