Hot Hands in Mutual Funds: Short‐Run Persistence of Relative Performance, 1974–1988

TLDR

Investigations using a different data set and post‑1988 data confirm the persistence finding. Relative performance of no‑load, growth‑oriented mutual funds persists over the near term—most strongly over a one‑year horizon—with bottom‑octile portfolios underperforming benchmarks by 6–8% per year, top performers slightly outperforming, and these results remaining robust to known anomalies and confirmed by additional data sets.

Abstract

ABSTRACT The relative performance of no‐load, growth‐oriented mutual funds persists in the near term, with the strongest evidence for a one‐year evaluation horizon. Portfolios of recent poor performers do significantly worse than standard benchmarks; those of recent top performers do better, though not significantly so. The difference in risk‐adjusted performance between the top and bottom octile portfolios is six to eight percent per year. These results are not attributable to known anomalies or survivorship bias. Investigations with a different (previously used) data set and with some post‐1988 data confirm the finding of persistence.