Is the Performance of Icelandic Mutual Funds Persistent?

Abstract

This study analyses the performance persistence of Icelandic mutual funds. The study uses data for almost all funds that were operated between 1998 and 2005. Three different methods are applied to analyze whether the performance in a given year can be used to predict performance in the following year. The conclusion is that prior performance is not a good indicator of subsequent performance. When individual types of mutual funds are analyzed there are though some examples of time consistency or inconsistency. There is thus a positive correlation between prior and subsequent returns for funds that invest in foreign stocks but a negative correlation for funds that invest in domestic stocks. In both cases the link is however weak and could have several explanations.