Mutual Fund Return Predictability In Partially Segmented Markets
This paper studies the predictability of European equity mutual fund performance during a period when European stock markets were partially segmented. Specifically, the authors use macroeconomic variables to predict the performance of European equity funds, including Pan-European, country, and sector funds. They find that macro-variables are useful in locating funds with future outperformance, and that country-specific mutual funds provide the best opportunities for fund rotation strategies using macroeconomic information. Specifically, the baseline long-only strategies provide four-factor alphas of 7-12%/year over the 1993-2008 period. This paper provides new evidence on the benefits of local asset managers in segmented markets, as well as how macroeconomic information can be used to locate and exploit these benefits.