Mutual Fund Persistence Using Kalman Filter Models

• DOI: 10.2139/ssrn.2644069
• Publication Date: 2015-08-19T15:02:50Z
• Authors: Adam James Corbett; Rui Chen
• Keywords: Persistence (discontinuity)

Using a dynamic state-space framework, we examine the persistence of US equity mutual fund performance. Performance is estimated from standard factor models via Kalman filter following that Mamaysky et al. (2008), which has not been used in literature until now. Persistence tested across monthly, quarterly, biannual and annual horizons 1995 to 2015. In opposition with current literature, present strong evidence funds exhibit risk-adjusted performance all measurement horizons, driven by fees. However, unable translate into immediately higher net returns for investors. These findings lend support notion some managers do possess skill their ability select stocks.