Past Performance is No Guide to Future Performance

By on February 6, 2010

Social Science Research Network has revealed that an in-depth study of mutual fund returns shows that persistence of above average returns is not evident.

Looking at longer term performance, 24.32% of large-cap funds with a top-quartile ranking over the five years ending September 2004 maintained a top-quartile ranking over the next five years. Only 16.39% of mid-cap funds and 27.06% of small-cap funds maintained a top-quartile performance over the same period. Random expectations would suggest a repeat rate of 25%.

The results are supposedly survivorship bias free.

Source: SSRN

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