Performance Persistence. Research Analysis of US Open-End Funds

This article examined the performance persistence of 12083 open-end funds using a large survivorship bias-free sample from Wiesenberger InvestmentView. The methodology that we have used is contingency tables. In order to examine performance persistence we rank the returns of funds over the period 2010 to 2020 using average returns figures. We categorize the funds based on their returns as winners and losers using positive and negative returns values. In each category, we mention the number of funds. Funds based on their returns as positives or negatives were classified as winners – winners, WW, losers – losers, LL, winners – losers, WL and losers-winners, LW. Our methodology is similar to the one used by Tonks (2000), Allen and Tan (1999) and Carpenter and Lynch (1999). The results are mixed. There is evidence of strong persistence of winners – winners, WW and losers-losers, LL. In contrast, winners –losers and losers-winners show mixed results of weak persistence. Winners’ open-end funds that continue to be winners in the next year shows that fund managers have stock picking ability, skill and not luck. In contrast, losers’ open-end funds that continues to be losers in the next year shows that fund manager’s lack of skill and stock picking ability. The findings are interesting to both practitioners and investors in terms of distinguishing luck from skill stock picking ability. In addition, investors through contingency tables would consider the degree of performance persistence between WW and LL