Out-of-Sample Performance of Mutual Fund Predictors

Review of Financial Studies, Forthcoming

64 Pages Posted: 28 May 2017 Last revised: 8 Dec 2019

See all articles by Christopher S. Jones

Christopher S. Jones

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

Haitao Mo

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Date Written: October 31, 2019

Abstract

We analyze the out-of-sample performance of variables shown to forecast future mutual fund alphas. The degree of predictability, as measured by alpha spreads from quintile sorts or by cross-sectional regression slopes, falls by at least half post-sample. These declines appear to be primarily the result of changes in the level of arbitrage activity in the market, with mutual fund competition appearing to play a secondary role. We find no evidence that the declines are the result of data snooping or learning. Finally, we show that corporate bond fund performance exhibits similar dependence on measures of bond market arbitrage activity.

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 (October 31, 2019). Review of Financial Studies, Forthcoming. 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)

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

Baton Rouge, LA 70803-6308
United States

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