Estimating Short-Run Persistence in Mutual Fund Performance

JR ter Horst, Marno Verbeek

Research output: Contribution to journalArticleAcademicpeer-review

6 Citations (Scopus)


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.
Original languageEnglish
Pages (from-to)646-655
Number of pages10
JournalThe Review of Economics and Statistics
Issue number4
Publication statusPublished - 2000
Externally publishedYes

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  • RSM F&A


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