Author(s)
We document that the observed persistence amongst the worst
performing actively managed mutual funds is attributable to funds that
have performed poorly both in the current and prior year. We demonstrate
that this persistence results from an unwillingness of investors in
these funds to respond to bad performance by withdrawing their capital.
In contrast, funds that only performed poorly in the current year have a
significantly larger (out)flow of funds/return
sensitivity and consequently show no evidence of persistence in their
returns.