Skill and Persistence in Mutual Fund Returns: Evidence from a Six-Factor Model
56 Pages Posted: 18 Jan 2016 Last revised: 15 Apr 2016
Date Written: March 25, 2016
The addition of the Fama and French (2015) profitability (RMW) and investment (CMA) factors to the standard four-factor model reveals persistent positive alpha after fees for mutual funds. Over the period 2000-2014, about 65 percent of fund managers have at least some skill, and about 15 percent have skill in excess of fees. The best performing funds have significant negative exposures to both factors, while the worst performing funds have significant positive exposures. Because of that pattern, failure to account for these factors masks a difference in alpha between the best and worst performers of almost 7 percent per year.
Keywords: Mutual fund, skill, alpha, persistence
JEL Classification: G11, G14
Suggested Citation: Suggested Citation