The authors examine whether mutual fund alpha persistence is real and investable, focusing on how portfolio size and holding periods influence outcomes. They argue persistence exists in narrower settings, showing that smaller fund groupings and shorter horizons can produce statistically meaningful excess returns that challenge the broad “no skill” narrative.
Rumours of the Death of the American Public Company are Greatly Exaggerated
Brian Cheffins
Research
26 Pages
Key Takeaways
Short-Term Alpha Persistence: Top-decile funds generate about 2–3% excess returns over 3–6 months, with statistical significance declining rapidly beyond a 12-month holding period.
Portfolio Size Matters: Persistence is strongest in portfolios of 5–10 funds, where alpha remains positive, versus near 0% when expanded to 50+ fund groupings.
Decay Over Time: Roughly 70% of initial alpha dissipates within 12 months, highlighting how timing and turnover are critical to capturing any persistence.
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