The persistence of European mutual fund performance

This paper examines the performance and persistence in performance of style-consistent European equity mutual funds between 1988 and 2010. Using a large survivorship bias-free sample for six European countries, we document strong evidence of persistence in benchmark-adjusted returns over 1-year time periods as well as over longer periods. We find statistically and economically significant performance persistence for time horizons of up to 36 months, although persistence is much more pronounced for the top and bottom performers. Thus, past performance of European mutual funds have explanatory power for future performance and investors can obtain useful evidence from past performance data.

► Alpha persistence of up to three years is both economically and statistically highly significant.
► European mutual funds show strong evidence of significant performance persistence, which is constant across investment styles, on an annual basis and in the longer-term periods.
► Conditioning information in performance measurement is both statistically and economically significant.
► Average performance (Jensen's alpha) is negative for all fund portfolios at any time horizon considered.