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How to measure mutual fund performance: economic versus statistical relevance

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  • Rogér Otten
  • Dennis Bams

Abstract

In the present paper a comprehensive assessment of existing mutual fund performance models is presented. Using a survivor-bias free database of all US mutual funds, we explore the added value of introducing extra variables such as size, book-to-market, momentum and a bond index. In addition to that we evaluate the use of introducing time-variation in betas and alpha. The search for the most suitable model to measure mutual fund performance will be addressed along two lines. First, we are interested in the statistical significance of adding more factors to the single factor model. Second, we focus on the economic importance of more elaborate model specifications. The added value of the present study lies both in the step-wise process of identifying relevant factors, and the use of a rich US mutual fund database that was recently released by the Center for Research in Security Prices. Copyright AFAANZ, 2004..

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Bibliographic Info

Article provided by Accounting and Finance Association of Australia and New Zealand in its journal Accounting and Finance.

Volume (Year): 44 (2004)
Issue (Month): 2 ()
Pages: 203-222

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Handle: RePEc:bla:acctfi:v:44:y:2004:i:2:p:203-222

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Cited by:
  1. Bialkowski, Jedrzej & Otten, Roger, 2011. "Emerging market mutual fund performance: Evidence for Poland," The North American Journal of Economics and Finance, Elsevier, vol. 22(2), pages 118-130, August.
  2. Pei-I Chou & Chia-Hao Lee, 2012. "Is Concentration a Good Idea? Evidence from Active Fund Management," Asia-Pacific Financial Markets, Springer, vol. 19(1), pages 23-41, March.
  3. Paulo Armada Leite & Maria Ceu Cortez, 2009. "Conditioning information in mutual fund performance evaluation: Portuguese evidence," The European Journal of Finance, Taylor & Francis Journals, vol. 15(5-6), pages 585-605.
  4. Caporin, Massimiliano & Lisi, Francesco, 2013. "A Conditional Single Index model with Local Covariates for detecting and evaluating active portfolio management," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 236-249.
  5. Lai, Ming-Ming & Lau, Siok-Hwa, 2010. "Evaluating mutual fund performance in an emerging Asian economy: The Malaysian experience," Journal of Asian Economics, Elsevier, vol. 21(4), pages 378-390, August.
  6. Ferruz Agudo, Luis & Vargas Magallón, María & Nievas López, J., 2008. "¿Utilizan los gestores españoles de fondos de inversión información privada en sus labores de gestión?," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 26, pages 257-278, Septiembr.
  7. Jacquelyn Humphrey & Darren Lee, 2011. "Australian Socially Responsible Funds: Performance, Risk and Screening Intensity," Journal of Business Ethics, Springer, vol. 102(4), pages 519-535, September.
  8. Mehreen Mahmud & Nawazish Mirza, 2011. "An Evaluation of Mutual Fund Performance in an Emerging Economy: The Case of Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 301-316, September.
  9. Luis Ferruz Agudo & Maria Vargas Magallon & Jose Sarto, 2006. "Evaluation of performance and conditional information: the case of Spanish mutual funds," Applied Financial Economics, Taylor & Francis Journals, vol. 16(11), pages 803-817.
  10. S. M. Aamir Shah & Syed Tahir Hijazi, 2005. "Performance Evaluation of Mutual Funds in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 863-876.

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