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





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    • John F. Kennedy School of Government, Harvard University. The research was supported by grants from the Bradley Foundation and the Decision, Risk, and Management Science Program of the National Science Foundation. We thank Robert Zeckhauser, whose interest in the hot hands phenomenon stimulated this investigation, Sheridan Titman for providing data on the P8 indices, and David Modest for allowing us to use the Henriksson-Lehmann-Modest sample of mutual fund returns. Helpful comments from Richard Ruback, Lawrence Summers, G. William Schwert, two referees, the editor René Stulz, and seminar participants at Cornell University, the conference on “Economics of Financial Markets” at Johns Hopkins University, the Harvard Business School, the Kennedy School of Government, and the National Bureau of Economic Research are gratefully acknowledged.


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.