Data Analysis and Related Applications, Volume 1

11Performance Persistence of Polish Mutual Funds: Mobility Measures

The purpose of this chapter was to evaluate the phenomenon of performance persistence in a developing market. The analysis was conducted for Polish mutual funds from three time perspectives: monthly, quarterly and yearly. The research approach applied was a Markovian framework supported with a few mobility measures. The results reveal the existence of limited performance persistence, which decreases as the timeframe increases. Moreover, the observed propensity for a relative repetition of mutual fund performance in consecutive periods seems to involve losers rather than winners, and hence it takes the form of the “icy hand” effect.

11.1. Introduction

The notion of the “hot hand” is defined in social psychology as a string of successes believed in by many gamblers during continued gaming. The name of the phenomenon originates from the conviction shared by basketball players and fans that the likelihood of a player hitting a shot is greater after a hit than after a miss on the previous shot (Wilkinson and Klaes 2012). In finance, the term stands for making decisions on the basis of an increase in stock prices in the previous period on the assumption that it will be similar in the next period (see Haslem 2003). Another cognitive social bias, the so-called “gambler’s fallacy”, is in a way an opposite concept, as it describes the situation of a mistaken belief that the occurrence of a certain random event is less ...