American equity mutual funds in European markets: Hot hands phenomenon and style analysis

Abstract

Abstract We studied empirically American no‐load equity mutual funds that invest in European stocks and keep their managers for more than three years, in order to investigate the persistence of the short‐term performance, and the related investment style. The results showed an underperformance compared to the Eurostoxx index and a ‘hot hands’ phenomenon does not persist, with some exceptions. Mutual funds that performed well in a five‐month evaluation period continued to generate superior performance in the next four months. According to style analysis a portfolio constructed by growth‐large, growth‐medium and value‐large capitalization stocks outperformed any other investment style. However, well‐diversified funds were the most mean–variance efficient, style‐consistent funds. Copyright © 2004 John Wiley & Sons, Ltd.

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