On Persistence in Mutual Fund Performance
Mark M. Carhart
Kepos Capital LP
J. OF FINANCE, Vol. 52 No. 1, March 1997
Using a sample free of survivor bias, I demonstrate that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual funds' mean and risk-adjusted returns. Hendricks, Patel and Zeckhauser's (1993) "hot hands" result is mostly driven by the one-year momentum effect of Jegadeesh and Titman (1993), but individual funds do not earn higher returns from following the momentum strategy in stocks. The only significant persistence not explained is concentrated in strong underperformance by the worst-return mutual funds. The results do not support the existence of skilled or informed mutual fund portfolio managers.
JEL Classification: G11Accepted Paper Series
Date posted: January 15, 1997
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