Performance Persistence of Active Mutual Funds Against Passive Index Funds

Abstract

This research studies short- and mid-term persistence in the performance of actively managed European equity mutual funds in a sample from June 2002 to June 2022. The focus of this study is to evaluate the performance persistence against alternative portfolios of index funds, which reflect individual investors' other options. This research finds a significant persistence in the performance of actively managed mutual funds over the subsequent month. In that period, the portfolio of the best-performing mutual funds from the previous period outperforms the alternative portfolios. In the more extended evaluation periods, 3-12 months, the outperformance disappears, and the persistence pattern becomes minor.