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Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons

Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons ABSTRACT The authors' main goal in this paper is to ascertain whether conventional measures of abnormal mutual fund performance are sensitive to the benchmark chosen to measure normal performance. They employ the standard CAPM benchmarks and a variety of APT benchmarks to investigate this question. They find little similarity between the absolute and relative mutual fund rankings obtained from these alternative benchmarks, which suggests the importance of knowing the appropriate model for risk and return in this context. In addition, the rankings are not insensitive to the method used to construct the APT benchmark. Finally, they find statistically significant measured abnormal performance using all the benchmarks. The economic explanation for this phenomenon appears to be an open question. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons

The Journal of Finance , Volume 42 (2) – Jun 1, 1987

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References (37)

Publisher
Wiley
Copyright
1987 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1987.tb02566.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT The authors' main goal in this paper is to ascertain whether conventional measures of abnormal mutual fund performance are sensitive to the benchmark chosen to measure normal performance. They employ the standard CAPM benchmarks and a variety of APT benchmarks to investigate this question. They find little similarity between the absolute and relative mutual fund rankings obtained from these alternative benchmarks, which suggests the importance of knowing the appropriate model for risk and return in this context. In addition, the rankings are not insensitive to the method used to construct the APT benchmark. Finally, they find statistically significant measured abnormal performance using all the benchmarks. The economic explanation for this phenomenon appears to be an open question.

Journal

The Journal of FinanceWiley

Published: Jun 1, 1987

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