One Instance Not a Trend: Empirical Lack of Persistence in Earnings Prediction. Revisiting the EMH in Sweden with an active fund selection framework

Abstract

This thesis examines the performance of active fund management in Sweden 2006-2015 by applying a framework to identify mutual fund managers whose index deviations historically have proved successful around earnings announcements. The Active Fundamental Performance (AFP) measure, proposed by Jiang & Zheng (2015), is defined as covariance between deviations from market weights and three-day alpha around earnings. We find no persistence in the measure. The top quintile portfolio exhibit statistically significant negative alphas during the financial crisis and alphas not different from zero afterwards. Our results strengthen the idea of a semi-strong form of market efficiency and have implications for market participants considering whether to invest passively or actively.