This paper analyzes the properties of a number of estimators that can be used to estimate short-run persistence in mutual fund returns. When data for different funds are pooled, it is advisable to correct for cross-sectional differences in expected returns. However, these adjustments may induce biases in the estimated persistence coefficients and thus lead to spurious persistence. Theoretical derivations, combined with a Monte Carlo study, show that these biases cannot be neglected for the samples that are typically used in applied work. We also estimate the short-run persistence in two samples of U.S. open-end mutual funds using quarterly returns for 1987-1994. An important conclusion is that the results are quite sensitive to the estimation method that is employed.

Additional Metadata
Keywords Monte Carlo method, USA, estimation theory, mutual funds, persistence, rate of return
Persistent URL dx.doi.org/10.1162/003465300558984, hdl.handle.net/1765/12632
Journal The Review of Economics and Statistics
Citation
ter Horst, J.R, & Verbeek, M.J.C.M. (2000). Estimating Short-Run Persistence in Mutual Fund Performance. The Review of Economics and Statistics, 645–655. doi:10.1162/003465300558984