Persistence in Mutual Fund Performance and Time-Varying Risk Exposures

38 Pages Posted: 22 Sep 2009

See all articles by Diana Budiono

Diana Budiono

Syntrus Achmea Asset Management

Martin Martens

Erasmus University Rotterdam (EUR); Robeco Asset Management

Date Written: September 12, 2009


Persistence in mutual fund performance is usually measured by the risk-adjusted returns of the portfolio that is long the top and short the bottom past year return deciles. A key challenge is to properly adjust for the time-varying risk exposures of this portfolio. We show that the Fama and French model overestimates persistence at 10.6 percent per annum whilst the Carhart model underestimates persistence at an insignificant 1.9 percent per annum. It is important to consider the dependence of the risk exposures on the sign and magnitude of past factor returns as well as the dispersion in the mutual fund exposures because they determine which funds will be in the top and bottom deciles. Doing so results in a significant risk-adjusted alpha of 6.7 percent per annum. Hence persistence exists.

Keywords: mutual funds, performance persistence, time-varying risk exposures

JEL Classification: G11, G14, G19

Suggested Citation

Budiono, Diana Patricia and Martens, Martin P.E., Persistence in Mutual Fund Performance and Time-Varying Risk Exposures (September 12, 2009). Available at SSRN: or

Diana Patricia Budiono (Contact Author)

Syntrus Achmea Asset Management ( email )

PO box 3183
Utrecht, 3502 GD

Martin P.E. Martens

Erasmus University Rotterdam (EUR) ( email )

P.O. Box 1738
3000 DR Rotterdam
+31 10 408 1253 (Phone)
+31 10 408 9162 (Fax)

Robeco Asset Management ( email )

Rotterdam, 3011 AG

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