HOT HANDS IN MUTUAL FUNDS - SHORT-RUN PERSISTENCE OF RELATIVE PERFORMANCE, 1974-1988

The relative performance of no-load, growth-oriented mutual funds persists in the near term, with the strongest evidence for a one-year evaluation horizon. Portfolios of recent poor performers do significantly worse than standard benchmarks; those of recent top performers do better, though not significantly so. The difference in risk-adjusted performance between the top and bottom octile portfolios is six to eight percent per year. These results are not attributable to known anomalies or survivorship bias. Investigations with a different (previously used) data set and with some post-1988 data confirm the finding of persistence.