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Most academic studies on performance persistence in monthly mutual fund returns do not find evidence for timing skills of fund managers. Furthermore, realized returns are undoubtedly driven by the investment style of a fund. The authors propose a new holdings-based measure of style rotation to investigate the relation between performance persistence and changes in style. For a large sample of U.S. domestic equity mutual funds they find that top and bottom performing decile portfolios, sorted on past one-year returns and risk-adjusted excess performance from a 4-factor model, are subject to a higher degree of style rotation than middle deciles.
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