The Memory in Return Volatility: An Analysis of Mutual Fund Returns

ABSTRACT This paper examines long memory in the return volatility in the cross‐section of U.S. mutual funds. Our results provide evidence of this phenomenon. Through univariate analysis, we find that the long memory in mutual fund return volatility is more pronounced than in stock return volatility. Additionally, the long memory estimate is negatively related to expected fund returns. Holding a long position in shorter‐term memory funds and a short position in longer‐term memory funds generates significant excess returns of 0.26% per month for value‐weighted portfolios.