Cross-Sectional Learning and Short-Run Persistence in Mutual Fund Performance

40 Pages Posted: 23 Jul 2004

See all articles by Marno Verbeek

Marno Verbeek

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM); Netspar

Joop Huij

Erasmus University - Rotterdam School of Management; Robeco; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

Multiple version iconThere are 2 versions of this paper

Date Written: October 10, 2006

Abstract

Using monthly return data of more than 6,400 US equity mutual funds we investigate short-run performance persistence over the period 1984-2003. We sort funds into rank portfolios based on past performance, and evaluate the portfolios' out-of-sample performance. To cope with short ranking periods, we employ an empirical Bayes approach to measure past performance more efficiently. Our main finding is that when funds are sorted into decile portfolios based on 12-month ranking periods, the top decile of funds earns a statistically significant, abnormal return of 0.26 percent per month. This effect persists beyond load fees, and is mainly concentrated in relatively young, small cap/growth funds.

Keywords: Mutual funds, performance persistence, Bayesian analysis

JEL Classification: G11, G23, C11

Suggested Citation

Verbeek, Marno and Huij, Joop, Cross-Sectional Learning and Short-Run Persistence in Mutual Fund Performance (October 10, 2006). ERIM Research Paper Series, Available at SSRN: https://ssrn.com/abstract=567701 or http://dx.doi.org/10.2139/ssrn.567701

Marno Verbeek

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2790 (Phone)

HOME PAGE: http://www.rsm.nl/mverbeek

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Joop Huij (Contact Author)

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://www.rsm.nl/jhuij

Robeco

Rotterdam, 3014DA
Netherlands

HOME PAGE: http://www.robeco.com/

Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

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