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Abnormal profits and relative strength in mutual fund returns
Author(s) -
Volkman David A.,
Wohar Mark E.
Publication year - 1996
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/s1058-3300(96)90009-9
Subject(s) - mutual fund , profitability index , persistence (discontinuity) , closed end fund , economics , econometrics , weighting , manager of managers fund , income fund , monetary economics , investment strategy , fund of funds , financial economics , business , fund administration , finance , medicine , geotechnical engineering , market liquidity , engineering , radiology
This study investigates the relative strength in mutual fund performance by employing three different empirical methods to analyze the profitability of twenty trading strategies, based on varying evaluation horizons and investment periods. Specifically, we test for positive persistence in fund performance by focusing on the optimal weighting of past performance information. Counter to an earlier study on relative strength of fund performance, this study's results do not support the decay of performance persistence after one year. Rather, we find persistent abnormal fund returns over a one to three year investment period based on a three to four year evaluation horizon. In addition, results show that relative strength in fund performance is directly related to persistence in superior performing funds rather than a function of persistence in inferior performing funds.