Cross-Sectional Learning and Short-Run Persistence in Mutual Fund Performance
Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM); Netspar
Erasmus University - Rotterdam School of Management; Robeco Quantitative Strategies; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)
October 10, 2006
ERIM Research Paper Series
Using monthly return data of more than 6,400 US equity mutual funds we investigate short-run performance persistence over the period 1984-2003. We sort funds into rank portfolios based on past performance, and evaluate the portfolios' out-of-sample performance. To cope with short ranking periods, we employ an empirical Bayes approach to measure past performance more efficiently. Our main finding is that when funds are sorted into decile portfolios based on 12-month ranking periods, the top decile of funds earns a statistically significant, abnormal return of 0.26 percent per month. This effect persists beyond load fees, and is mainly concentrated in relatively young, small cap/growth funds.
Number of Pages in PDF File: 40
Keywords: Mutual funds, performance persistence, Bayesian analysis
JEL Classification: G11, G23, C11working papers series
Date posted: July 23, 2004
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