Mark M. Carhart examines the persistence in mutual fund performance and finds that common factors in stock returns and investment expenses largely explain the predictability in mutual fund returns. He shows that the "hot hands" effect, often attributed to skill, is mainly driven by the one-year momentum effect in stock returns. However, individual funds do not consistently earn higher returns by following momentum strategies, as some funds simply happen to hold more of last year's winning stocks. The only significant persistence not explained is concentrated in the strong underperformance of the worst-return mutual funds. Carhart's analysis indicates that mutual fund persistence is largely due to common factors and costs, not skill. He finds that expenses and turnover negatively impact fund performance, with turnover reducing performance by about 0.95 percent of the trade's market value. He also finds that load funds underperform no-load funds by about 80 basis points per year due to higher transaction costs. Carhart uses a 4-factor model that includes the one-year momentum anomaly to explain mutual fund returns. This model explains much of the variation in returns, with the momentum factor accounting for a significant portion of the spread between high and low-performing funds. He also finds that transaction costs consume the gains from following a momentum strategy in stocks. Carhart's results suggest that mutual fund returns persist due to common factors and costs, not skill. He finds that the best-performing funds are able to recoup their expenses and transaction costs, while the worst-performing funds continue to underperform. The study controls for survivor bias and provides a detailed analysis of mutual fund performance, showing that most of the persistence in mutual fund returns is explained by common factors and costs. The results do not support the existence of skilled or informed mutual fund portfolio managers.Mark M. Carhart examines the persistence in mutual fund performance and finds that common factors in stock returns and investment expenses largely explain the predictability in mutual fund returns. He shows that the "hot hands" effect, often attributed to skill, is mainly driven by the one-year momentum effect in stock returns. However, individual funds do not consistently earn higher returns by following momentum strategies, as some funds simply happen to hold more of last year's winning stocks. The only significant persistence not explained is concentrated in the strong underperformance of the worst-return mutual funds. Carhart's analysis indicates that mutual fund persistence is largely due to common factors and costs, not skill. He finds that expenses and turnover negatively impact fund performance, with turnover reducing performance by about 0.95 percent of the trade's market value. He also finds that load funds underperform no-load funds by about 80 basis points per year due to higher transaction costs. Carhart uses a 4-factor model that includes the one-year momentum anomaly to explain mutual fund returns. This model explains much of the variation in returns, with the momentum factor accounting for a significant portion of the spread between high and low-performing funds. He also finds that transaction costs consume the gains from following a momentum strategy in stocks. Carhart's results suggest that mutual fund returns persist due to common factors and costs, not skill. He finds that the best-performing funds are able to recoup their expenses and transaction costs, while the worst-performing funds continue to underperform. The study controls for survivor bias and provides a detailed analysis of mutual fund performance, showing that most of the persistence in mutual fund returns is explained by common factors and costs. The results do not support the existence of skilled or informed mutual fund portfolio managers.