Did Mutual Fund Return Persistence Persist?

10 Pages Posted: 3 Feb 2020 Last revised: 23 Jun 2023

See all articles by James J. Choi

James J. Choi

Yale School of Management; National Bureau of Economic Research (NBER)

Kevin Zhao

Yale University

Date Written: January 2020


A seminal study of persistence in mutual fund performance is Carhart (1997), who found that U.S. equity mutual funds’ past-year returns positively predict their raw excess return and one-factor alpha over the next year. Based on these results, an investor may believe that she can earn higher returns by buying mutual funds with high past-year returns. We are able to replicate Carhart’s results in his 1963-1993 sample period, but we find that significant performance persistence does not exist in the 1994-2018 period. Even during the 1963-1993 period, performance persistence weakened in later years. The disappearance of significant performance persistence is due to lower returns to favorable styles, as well as less favorable style tilts and increased style-adjusted underperformance by past winning funds.

Suggested Citation

Choi, James J. and Zhao, Kevin, Did Mutual Fund Return Persistence Persist? (January 2020). NBER Working Paper No. w26707, Available at SSRN: https://ssrn.com/abstract=3530678

James J. Choi (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
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National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Kevin Zhao

Yale University ( email )

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