TY  - JOUR
AU  - Hendricks,Darryll
AU  - Patel,Jayendu
AU  - Zeckhauser,Richard
TI  - Hot Hands in Mutual Funds:  The Persistence of Performance, 1974-87
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3389
PY  - 1990
Y2  - June 1990
UR  - http://www.nber.org/papers/w3389
L1  - http://www.nber.org/papers/w3389.pdf
N1  - Author contact info:
Darryll Hendricks
Federal Reserve Bank of New York
E-Mail: Darryll.Hendricks@ubs.com

Jayendu Patel
Harvard University
E-Mail: jayendupatel@gmail.com

Richard J. Zeckhauser
John F. Kennedy School of Government
Harvard University
79 John F. Kennedy Street
Cambridge, MA  02138
Tel: 617/495-1174
Fax: 617/384-9340
E-Mail: richard_zeckhauser@harvard.edu
M2  - featured in NBER digest on 1990-10-01
AB  - The net returns of no-load mutual growth funds exhibit a hot-hands phenomenon during 1974-87. When performance is measured by Jensen's alpha, mutual funds that perform well in a one year evaluation period continue to generate superior performance in the following year.  Underperformers also display short-run persistence. Hot hands persists in 1988 and 1989. 
The success of the hot hands strategy does not derive from selecting superior funds over the sample period. The timing component -- knowing when to pick which fund -- is significant. These results are robust to alternative equity portfolio benchmarks, such as those that account for firm-size effects and mean reversion in returns. Capitilizing on the hot hands phenomenon, an investor could have generated a significant, risk-adjusted excess return of 10% per year.
ER  -