Performance persistence in fixed interest funds: With an eye on the post-debt crisis period

• We test for performance persistence in a sample of bond mutual funds domiciled in Portugal, Italy, Greece and Spain (PIGS) for short, medium and long-term time horizons.
• ‘Cold hands’ is found in short as well as medium term periods with ‘hot hands’ being the second best most common outcome.
• Alternative performance measurement techniques provide notably different performance ranking results.
• An ex-post investment strategy focusing on persistent winners and avoiding persistent losers suggests the possibility of achieving above average returns.
• Early European debt crisis evidence shows that investing in persistent winner funds may significantly boost overall returns.

We examine performance persistence in a sample of Portugal, Italy, Greece, and Spain (PIGS) government debt mutual funds. Performance persistence is measured for short-, medium-, and long-term periods using the conditional CAPM, the Sharpe ratio, and a modified version of the Sharpe ratio. “Cold hands” are found for both short- and medium-term periods, with non-parametric testing reinforcing our findings. While “hot hands” are proven a close second place, in the long-run performance persistence is gradually weakened. Ex-post tests, based on performance persistence results, suggest the possibility to achieve superior performance relative to the market average by sticking to winner and avoiding loser funds.