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Journal of Finance Vol. 50 No. 2 1995

Performance Persistence

Stephen J. Brown; William N. Goetzmann1

1 Brown is from the Leonard Stern School of Business, New York University. Goetzmann is from the School of Management, Yale University. We thank Bent Christiansen, Edwin Elton, Mark Grinblatt, Martin Gruber, Gur Huberman, Roger Ibbotson, Philippe Jorion, Robert Korajczyk, Josef Lakonishok, Jayendu Pat

Abstract

We explore performance persistence in mutual funds using absolute and relative benchmarks. Our sample, largely free of survivorship bias, indicates that relative risk‐adjusted performance of mutual funds persists; however, persistence is mostly due to funds that lag the S&P 500. A probit analysis indicates that poor performance increases the probability of disappearance. A year‐by‐year decomposition of the persistence effect demonstrates that the relative performance pattern depends upon the time period observed, and it is correlated across managers. Consequently, it is due to a common strategy that is not captured by standard stylistic categories or risk adjustment procedures.

DOI
10.1111/j.1540-6261.1995.tb04800.x
Volume
50
Issue
2
Pages
679-698
Language
en
Sources
crossref openalex

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