Slow and Steady Wins the Race: The Impact of Chasing Returns on Quartile Rankings

27 Pages Posted: 9 Aug 2019

See all articles by Rama Malladi

Rama Malladi

California State University, Dominguez Hills

Jennifer Brodmann

California State University, Dominguez Hills

Date Written: July 31, 2019

Abstract

This paper explores whether passive fund managers who aim to be in the 1st quartile by chasing higher returns (i.e. higher risk) are more likely to achieve their goal compared with those that chase somewhat lesser returns (i.e. lower risk). Using monthly historical returns from 01/01/1979 to 01/01/2018, we show that if a fund’s goal is to achieve higher assets under management (AUM), it should aim to be in the 1st quartile every year. However, if a fund’s long-term goal is to stay in the 1st quartile, it should aim to be in the 2nd quartile every year.

Keywords: asset management; risk and return; quartile; fund performance; benchmark; investment performance.

JEL Classification: G11

Suggested Citation

Malladi, Rama and Brodmann, Jennifer, Slow and Steady Wins the Race: The Impact of Chasing Returns on Quartile Rankings (July 31, 2019). Available at SSRN: https://ssrn.com/abstract=3433321 or http://dx.doi.org/10.2139/ssrn.3433321

Rama Malladi (Contact Author)

California State University, Dominguez Hills ( email )

1000 E. Victoria Street
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3102433560 (Phone)

Jennifer Brodmann

California State University, Dominguez Hills ( email )

1000 E. Victoria Street, Carson, CA
Carson, CA 90747
United States

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