Costs, Growth and Performance Persistence in Hungarian Equity Mutual Funds: A Quantile Panel Analysis
Abstract
The value-creation capacity of active asset management remains one of the most debated issues within modern portfolio theory. While the relationship between costs and performance is typically negative in developed markets, in smaller and less liquid markets—where information asymmetry is more pronounced—higher fees may also be interpreted as signals of managerial ability. This study investigates this apparent contradiction in the context of the Hungarian equity mutual fund market, using a panel dataset covering 79 funds over the period 2017–2024, with a particular focus on identifying non-linear effects among performance determinants. The methodological framework combines fixed-effects panel regression with Driscoll-Kraay robust standard errors, complemented by quantile regression estimates to examine different segments of the return and alpha distributions. The results indicate that growth dynamics (NAV_change) and cumulative historical performance (Yield_from_start) consistently enhance fund performance, while the negative effect of past returns suggests the dominance of mean reversion. The impact of the total expense ratio (TER) proves to be non-linear and specification-dependent—a finding con-firmed by an extensive battery of robustness checks—thereby rejecting the cost-signalling hypothesis with respect to risk-adjusted excess returns (Jensen’s alpha). Quantile estimates further reveal that the effects of economies of scale and cost structure differ significantly between underperforming and top-performing funds, confirming that analyses based on average effects obscure the heterogeneity of market dynamics. By jointly modelling returns and risk-adjusted performance across the full conditional distribution, the study contributes a distribution-sensitive theoretical account of active management’s limitations in a small, less liquid market, showing that these limitations are conditional on fund size and cost structure rather than uniform across the fund population.