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On Persistence in Mutual Fund Performance

Mark M. Carhart
The Journal of Finance
Vol. 52, No. 1 (Mar., 1997), pp. 57-82
Published by: Wiley for the American Finance Association
DOI: 10.2307/2329556
Stable URL: http://www.jstor.org/stable/2329556
Page Count: 26
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On Persistence in Mutual Fund Performance
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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 stratégy 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.

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