The performance persistence study by Carhart in 1997 found that persistence could be explained by:

A) stock return factors and beta
B) beta and expenses
C) stock return factors and expenses
D) none of the above

Question

The performance persistence study by Carhart in 1997 found that persistence could be explained by:

A) stock return factors and beta
B) beta and expenses
C) stock return factors and expenses
D) none of the above

Quizplus · Accepted Answer

In an important study,Carhart (1997)argues that common stock return factors and investment expenses explain virtually all of the persistence effect evident in diversified equity funds.Specifically,one-year momentum in winning stocks drives the previously observed results.Carhart argues that performance persistence is merely attributable to those funds that happen to hold large positions in prior years' winning stocks.As such a strategy can be replicated by any investor,Carhart concludes that the evidence is not supportive of superior management skills.

The Performance Persistence Study by Carhart in 1997 Found That