Stephen J. Brown, William N. Goetzmann, Takato Hiraki, Toshiyuki Otsuki, Noriyoshi Shiraishi
ABSTRACT
Recent empirical evidence has suggested that the Japanese mutual fund
industry has under-performed dramatically over the past two decades. Conjectured
reasons for underperformance range from tax-dilution effects to high fees,
high turnover and poor asset management. In this paper, we show that this
underperformance is largely due to tax-dilution effects, and not necessarily
to poor management. Using a broad database of funds which includes investment
trusts closed to new investment, we show that once an instrument for the
time-varying tax dilution exposure is included in a factor model, there
is little evidence of poor risk-adjusted performance. A style analysis
of the industry demonstrates that managers appear to pursue tax-driven
dynamic strategies.
Subject: Investments; International Finance; Valuation/Effects of Taxes (Empirical)
Brown: (212)998-0306 sbrown@stern.nyu.edu
http://www.stern.nyu.edu/~sbrown/sbrown.html
Goetzmann: (203) 432-5950 william.goetzmann@yale.edu
http://www.viking.som.yale.edu/
Hiraki: +81 (257)79-1516 thiraki@iuj.ac.jp
Otsuki: +81 (257)79-1511 otsuki@iuj.ac.jp
Shiraishi: +81(3)3985-2320 siraisi@rikkyo.ac.jp
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