Out - of - sample performance of mutual fund predictors ∗

This study analyzes the out-of-sample performance of a variety of variables shown in prior work to forecast future mutual fund alphas. Overall, we find that the degree of predictability, as measured by alpha spreads from quintile sorts of by cross-sectional regression slopes, falls by at least half following the end of the sample and perhaps by 75% after publication. This decline is not driven by changes in fund flows or expenses, suggesting that it is not explained by the model of Berk and Green (2004). Rather, we find that the shrinking of alpha spreads is associated with higher levels of arbitrage activity, and that this largely explains the out-of-sample decline.