Persistence in Portuguese mutual fund performance

Abstract

Recent evidence suggests that future performance is predictable from past performance, that is, funds with superior (inferior) performance in the past are likely to remain good (bad) performers in the future. This research addresses the persistence of mutual fund performance in a European regional market (the Portuguese equity fund market). Some of the problems in evaluating fund persistence are identified in the context of limited sample size and using the peer group median as a benchmark for contingency table analysis of performance persistence. The criteria for assessing performance persistence based on the contingency table methodology of repeated winners and losers are presented in terms of significance statistics, adjusted for small sample bias. The adjustments are accomplished through the Yates continuity correction and Fisher's exact p-value. The appropriateness of each criteria under different circumstances is also discussed. The analysis of the returns of all Portuguese domestic equity funds, since a representative number was established, shows some performance persistence (on a quarterly basis). The persistence, however, is reduced when the returns are controlled for the various dimensions of risk. Significant risk persistence has been documented. Furthermore, for more or less frequent intervals of measurement, the industry persistence is rejected, although individual funds exhibit superior/inferior performance.