On Persistence in Mutual Fund Performance


  • Mark M. Carhart

    Search for more papers by this author
    • School of Business Administration, University of Southern California. I have benefited from helpful conversations with countless colleagues and participants at various workshops and seminars. I express particular thanks to Gene Fama, my dissertation committee chairman. I am also grateful to Gene Fama, the Oscar Mayer Fellowship, and the Dimensional Fund Advisors Fellowship for financial support. I thank Cliff Asness, Gene Fama, Ken French, and Russ Wermers for generously providing data. Finally, I thank Bill Crawford, Jr., Bill Crawford, Sr., and ICDI/Micropal for access to, and assistance with, their database.


Using a sample free of survivor bias, I demonstrate that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual funds' mean and risk-adjusted returns. Hendricks, Patel and Zeckhauser's (1993) “hot hands” result is mostly driven by the one-year momentum effect of Jegadeesh and Titman (1993), but individual funds do not earn higher returns from following the momentum strategy in stocks. The only significant persistence not explained is concentrated in strong underperformance by the worst-return mutual funds. The results do not support the existence of skilled or informed mutual fund portfolio managers.