Characteristics of Mutual Funds with Extreme Performance

Abstract

Our paper focuses on mutual fund characteristics associated with periods of extreme performance. We find funds with either positive (hot-hand) or negative (icy-hand) persistence tend to have portfolio similarities consistent with riskier positions: compared to no-streak funds they hold less stocks and invest more in top 10 holdings. Also both hot-hand and icy-hand funds have significantly higher turnover than benchmark funds.

At the same time, icy-hand (hot-hand) funds tend to have larger (smaller) management teams, and are less (more) likely to be managed by one manager. Finally, we do not observe many funds changing their management teams either before or after the streak of extreme performance. That is neither find we evidence that the beginning of extreme performance is associated with changes in management, nor that it causes changes in management.

Keywords: Mutual funds; Extreme performance; Fund characteristics

JEL Classification: G11; G23