NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Did Mutual Fund Return Persistence Persist?

James J. Choi, Kevin Zhao

NBER Working Paper No. 26707
Issued in January 2020
NBER Program(s):Asset Pricing

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.

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Document Object Identifier (DOI): 10.3386/w26707

 
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