Choice for smart investment in mutual funds: Single- or multi-period performance ranks

Abstract

This study presents strong evidence of fund performance persistence using a newly proposed multi-period performance rank (MR). The MR is the average of the performance ranks, calculated using multiple performance evaluation periods. With regard to 60-month returns to the performance rank, the performance persists over the next three years. This study explains performance persistence as a combination of fund investors’ behavior and fund managers’ abilities. The MR-based portfolios have low outflows and high turnover rates. MR-based investments are a smart choice for obtaining higher future returns.