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On Persistence in Mutual Fund Performance

The Journal of Finance · 1997 · Vol. 52(1) · pp. 57–82
Mark M. Carhart

Abstract

ABSTRACT Using a sample free of survivor bias, I demonstrate that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual funds' mean and risk‐adjusted returns. Hendricks, Patel and Zeckhauser's (1993) “hot hands” result is mostly driven by the one‐year momentum effect of Jegadeesh and Titman (1993) , but individual funds do not earn higher returns from following the momentum strategy in stocks. The only significant persistence not explained is concentrated in strong underperformance by the worst‐return mutual funds. The results do not support the existence of skilled or informed mutual fund portfolio managers.

Financial Markets and Investment StrategiesCorporate Finance and GovernanceAuditing, Earnings Management, GovernanceMutual fundClosed-end fundOpen-end fundPortfolioEquity (law)Persistence (discontinuity)Fund of fundsEconomicsStock (firearms)Financial economics
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References
Survivorship Bias in Performance Studies
Review of Financial Studies · 1992 · 1,146 citations
Common risk factors in the returns on stocks and bonds
Journal of Financial Economics · 1993 · 27,375 citations
Risk, Return, and Equilibrium: Empirical Tests
Journal of Political Economy · 1973 · 14,974 citations
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The Journal of Finance · 1996 · 6,469 citations
Spurious regressions in econometrics
Journal of Econometrics · 1974 · 6,117 citations
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