Mutual Fund Persistence Using Kalman Filter Models

25 Pages Posted: 14 Aug 2015 Last revised: 30 Aug 2015

See all articles by Adam James Corbett

Adam James Corbett

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Rui Chen

Central University of Finance and Economics (CUFE)

Date Written: August 27, 2015

Abstract

Using a dynamic state-space framework, we examine the persistence of US equity mutual fund performance. Performance is estimated from standard factor models via a Kalman filter following that of Mamaysky et al. (2008), which has not been used in the persistence literature until now. Persistence is tested across monthly, quarterly, biannual and annual horizons from 1995 to 2015. In opposition with current literature, we present strong evidence that funds exhibit persistence in risk-adjusted performance across all measurement horizons, and is not driven by fund fees. However, persistence in risk-adjusted performance is unable to translate into immediately higher net returns for investors. These findings lend support to the notion that some fund managers do possess skill in their ability to select stocks.

Keywords: Mutual funds, Performance persistence, Kalman Filter

Suggested Citation

Corbett, Adam James and Chen, Rui, Mutual Fund Persistence Using Kalman Filter Models (August 27, 2015). Available at SSRN: https://ssrn.com/abstract=2644069 or http://dx.doi.org/10.2139/ssrn.2644069

Adam James Corbett (Contact Author)

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Rui Chen

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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