Explaining Persistence in Mutual Fund Performance

This study investigates the determinants of persistence in mutual fund performance. Previous research that uses factor-mimicking portfolios and characteristic benchmarks to modelfund performancefails to explain all the persistence infund returns. This study employs a model that directly relates mutual fund returns to the characteristics of the stocks hem by funds. Adjusting fund returns for the size of the stocks in which funds invest andfinancial ratios intended to capturefund manager investment styles explains all the persistence in mutual fund returns from 1976-1985, the period in which persistence is most prevalent.