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Out-of-Sample Performance of Mutual Fund Predictors

52 Pages Posted: 28 May 2017 Last revised: 17 Sep 2017

Christopher S. Jones

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Haitao Mo

E. J. Ourso College of Business, Louisiana State University

Date Written: September 1, 2017

Abstract

This study analyzes the out-of-sample performance of a variety of variables shown in prior work to forecast future mutual fund alphas. Overall, we find that the degree of predictability, as measured by alpha spreads from quintile sorts or by cross-sectional regression slopes, falls by at least half out of sample. We conclude that these shrinking spreads are in part consistent with data snooping biases but that a more important driver may be changes in the degree of market efficiency. We find little evidence that the declines are the result of learning by investors or fund managers.

Keywords: mutual funds, out-of-sample performance, market efficiency

JEL Classification: G12, G14, G23

Suggested Citation

Jones, Christopher S. and Mo, Haitao, Out-of-Sample Performance of Mutual Fund Predictors (September 1, 2017). Available at SSRN: https://ssrn.com/abstract=2975430 or http://dx.doi.org/10.2139/ssrn.2975430

Christopher S. Jones

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

Haitao Mo (Contact Author)

E. J. Ourso College of Business, Louisiana State University ( email )

E. J. Ourso College of Business
Louisiana State University
Baton Rouge, LA 70803
United States

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