Uploaded March 2026 | Updated September 2026, 1 week ago
In this session, we continue examining the payoff to active investing by evaluating how much continuity there is in performance. We find little overall evidence of consistency, with investors in the top quartile in any time period just as likely to drop to the bottom quartile, as they are to stay in the top quartile. While there is some predictive power in mutual fund rankings and ratings, it comes from “hot hands” in mutual funds where the very best and the very worst mutual funds see a continuation of performance into the following time period. The overall under performance of money managers can be traced to four factors: high transactions costs, greater tax costs for investors (often caused by too much trading), failed attempts at market timing and various problems that can traced to incentive structures and behavioral factors.
Playlist for class (Intro + 42 sessions): youtube.com/playlist?list=PLUkh9m2BorqnZGADa8cTzeJblmrZY_SqP&si=zI2pk17pJeld4nWR
Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilslides25/session36.pdf
Post-class test: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilcertificate/postclass/session36test.pdf
Post-class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilcertificate/postclass/session36soln.pdf
In this session, we continue examining the payoff to active investing by evaluating how much continuity there is in performance. We find little overall evidence of consistency, with investors in the top quartile in any time period just as likely to drop to the bottom quartile, as they are to stay in the top quartile. While there is some predictive power in mutual fund rankings and ratings, it comes from “hot hands” in mutual funds where the very best and the very worst mutual funds see a continuation of performance into the following time period. The overall under performance of money managers can be traced to four factors: high transactions costs, greater tax costs for investors (often caused by too much trading), failed attempts at market timing and various problems that can traced to incentive structures and behavioral factors.
Playlist for class (Intro + 42 sessions): youtube.com/playlist?list=PLUkh9m2BorqnZGADa8cTzeJblmrZY_SqP&si=zI2pk17pJeld4nWR
Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilslides25/session36.pdf
Post-class test: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilcertificate/postclass/session36test.pdf
Post-class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilcertificate/postclass/session36soln.pdf
