Persistence of mutual funds returns : do Norwegian portfolio managers consistently beat market benchmarks?

Abstract

We conduct a study on 99 actively managed Norwegian mutual funds from 1996 to 2019 to investigate whether funds deliver returns in excess of passive benchmarks and if the funds' performance persists over time. We use the Fama and French 3-factor and Carhart 4-factor models as proxies for the passive benchmarks. Additionally, we bootstrap the results using Fama and French methodology to differentiate skill from luck in the mutual funds' returns. We find no evidence of skill among managers to produce superior returns for investors. To test for performance persistence, we employ recursive portfolio approach, construct contingency tables, and obtain cross-product ratios with corresponding Z and Chi-Squared statistics. The results of persistence tests suggest that only past losers remain losers in the subsequent period, while past winners are more likely to switch from outperforming to underperforming in the following period. Our study is the most comprehensive and up to date analysis of actively managed Norwegian mutual funds, which can be of interest to researchers and investors.