Dynamic Aspects of Mutual Fund Performance

Abstract

The previous chapters have argued on a theoretical basis that on average the investment performance of active mutual funds is negative net of costs and empirical results are consistent with this view. However, it is still possible that some fund managers are able to outperform their benchmark. If some managers are good at picking stocks, then it is reasonable to believe that such talents persist over time. The literature on performance persistence aims to test this conjecture. Interestingly, over periods of one year or longer, no persistence in fund performance can be documented.