Skill and Persistence in Mutual Fund Returns: Evidence from a Six-Factor Model

56 Pages Posted: 18 Jan 2016 Last revised: 15 Apr 2016

Bradford D. Jordan

University of Kentucky - Gatton College of Business and Economics

Timothy B. Riley

University of Arkansas - Department of Finance

Date Written: March 25, 2016

Abstract

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

Jordan, Bradford D. and Riley, Timothy B., Skill and Persistence in Mutual Fund Returns: Evidence from a Six-Factor Model (March 25, 2016). Available at SSRN: https://ssrn.com/abstract=2717091 or http://dx.doi.org/10.2139/ssrn.2717091

Bradford D. Jordan

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4887 (Phone)
859-257-9688 (Fax)

Timothy Brandon Riley (Contact Author)

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

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