A Test of the Persistence in the Performance of UK Managed Funds D.E.Allen and M.L. Tan* 1. INTRODUCTION This paper features tests of the persistence of investment trust company managers' rates of return and risk-adjusted returns in the United Kingdom (UK), on funds from 1989±1995. We analyse the relative performance of the funds and examine whether fund managers can maintain their inter-fund performance rankings over time (that is, whether past per- formance is a good predictor of future performance). We assess persistence in performance in the short-run and long-run based on four major empirical tests: contingency table analysis of winners and losers, chi-squared independence testing on these tables, Ordinary Least Square (OLS) regression analysis of CAPM risk-adjusted excess returns and independent Spearman Rank Correlation Coefficient (SRCC) calculations. If past performance is a predictor of future performance, first half `superior' managers in the first period would remain as `superior' managers in the next period, second half `inferior' managers in the second half and so on. Overall, we find that both raw returns and risk- adjusted returns exhibit strong evidence of persistence in the long-run (over one-year and two-year-intervals) but this evidence appears to reverse in the short-run (semi-annually and monthly). Journal of Business Finance & Accounting, 26(5) & (6), June/July 1999, 0306-686X ß Blackwell Publishers Ltd. 1999, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA. 559 * The authors are respectively from Edith Cowan University, Joondalup, Western Australia and Citibank, Singapore. They are grateful to Professor L. Thomas of the Department of Business Studies, the University of Edinburgh, for comments on an earlier draft. Any remaining errors are the authors' own. (Paper received March 1998, revised and accepted November 1998) Address for correspondence: D.E. Allen, Professor of Finance, Edith Cowan University, Joondalup Campus, Joondalup Drive, Joondalup, Western Australia 6027. e-mail: d.allen@cowan.edu.au