The Persistence of Risk-Adjusted Mutual Fund Performance

The Performance of Thai Mutual Funds: A 5-Star Morningstar Mutual Fund Rating

“…Another paper by [8], they found different story from previous paper, [7], they examine an initial 5-star Morningstar mutual fund rating, and predict the future performance after 3 years. They found that after fund received the 5-star rating, the fund performance severely falls off, mainly from higher risk levels of funds.…”

“…First, Reference [7] examined the mutual funds, and measured performance of those funds within one year by using risk-adjusted returns. They found that if the funds did well in the past, it trended to do well in the future.…”

Modern portfolio theory, 1950 to date

“…This approach has been used by Sharpe (1992), Elton et al (1996a), and Blake et al (1993). For example, Elton et al (1996a) employ a four-index model involving the S&P 500 Index, a size-related index, a bond index, and a growth-value index to explain the return on domestic non-specialized mutual funds. Sharpe uses a 12-index model to explain the return on a broader set of mutual funds including domestic as well as international bond funds and stock funds.…”

“…If past performance is unrelated to future performance, then performance evaluation is of no help when selecting a fund or a manager. Four recent studies have found persistence in mutual fund performance: Hendricks et al (1993), Grinblatt and Titman (1992), Sharpe (1994), and Elton et al (1996a). The last two studies use multi-index models based on portfolios of securities.…”

On the informativeness of persistence for evaluating mutual fund performance using partial frontiers

“…As indicated by Droms (2006), "winners in one year tend to remain winners in the following year and losers have an even stronger tendency to remain losers" (Droms, 2006, p.60). This particular topic has gained importance in the mutual fund performance evaluation literature, and several significant studies have been published since the early 1990s acknowledging this reality (see, for instance Grinblatt and Titman, 1992;Brown and Goetzmann, 1995;Carhart, 1997;Hendricks et al, 1993;Elton et al, 1996;Hendricks et al, 1993, among others). More recently, Pätäri (2009) has provided an extensive literature review of mutual fund performance persistence, and Cremers andPetajisto (2009) andLoon (2011) have proposed new methods to report evidence of persistence, and also on how investors respond to previous performance rankings.…”