PERFORMANCE, PERSISTENCE AND SURVIVOlRSHIP BIAS OF CANADIAN EQllJITY FUNDS 2001-2005

This study investigates the performance of Canadian equity funds over a 5-year period. I use a dataset consisting of monthly returns from all equity funds existed at any point from June 2001 to December 2005, which enables me to observe more precisely the performance and the extent of survivorship bias. Consistent with what has been addressed by the literature using US data, the sample shows that Canadian equity funds underperform the market benchmark on average over the study period. In add] tion to the contingency table approach, an ordered probit model is introduced to assess the predictability of fund past performance based on quartile rankings. I find evidence that goodlpoor performers are likely to persist only over a short-term horizon and not over a medium-term horizon. If the existence of load fees and sales fees is ignored, chasing top funds year by year seems to be a reliable investment strategy.