Return Persistence, Risk Dynamics and Momentum Exposures of Equity and Bond Mutual Funds
38 Pages Posted: 6 Mar 2007 Last revised: 29 Apr 2008
Date Written: March 2, 2007
To analyze persistence in mutual fund performance, it is common practice to construct portfolios of funds based on past fund returns. Using a large sample of equity and bond funds, we show that this approach introduces dynamic exposures to common stock and bond risk factors. Correcting for risk dynamics substantially reduces the level of persistence in risk-adjusted performance and drives out the explanatory power of stock and bond momentum factors.
Keywords: mutual funds, performance persistence, momentum, time-varying risk exposures
JEL Classification: G11, G14, G19
Suggested Citation: Suggested Citation