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An Intertemporal CAPM Approach to Evaluate Mutual Fund Performance

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  • Chang, Jow-ran
  • Hung, Mao-wei
  • Lee, Cheng-few

Abstract

Merton (1973) and Campbell (1993) have demonstrated that if an investor anticipates information shifts, he will adjust his portfolio choice today in an attempt to hedge these shifts. Exploiting these insights, we construct a new performance measure to evaluate fund managers' hedging ability. This new measure is different from two widely adopted performance evaluation measures: securities selectivity and market timing. Moreover, an econometric methodology is developed to simultaneously estimate the magnitudes of these three portfolio performance evaluation measures. The results show that mutual fund managers are on average with positive security selection and negative market timing ability. Furthermore, the mutual funds with investment style classified as "Asset Allocation" generally have positive hedging timing ability. Copyright 2003 by Kluwer Academic Publishers

Suggested Citation

  • Chang, Jow-ran & Hung, Mao-wei & Lee, Cheng-few, 2003. "An Intertemporal CAPM Approach to Evaluate Mutual Fund Performance," Review of Quantitative Finance and Accounting, Springer, vol. 20(4), pages 415-433, June.
    • Handle: RePEc:kap:rqfnac:v:20:y:2003:i:4:p:415-33
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    Cited by:

    1. Dimitrios Koutmos & Bochen Wu & Qi Zhang, 2020. "In search of winning mutual funds in the Chinese stock market," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 589-616, February.
    2. Wenzelburger, Jan, 2020. "Mean-variance analysis and the Modified Market Portfolio," Journal of Economic Dynamics and Control, Elsevier, vol. 111(C).
    3. G.V. Satya Sekhar, 2016. "Ten Myths of Performance Evaluation of Mutual Funds: a Snapshot View," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(1), pages 59-65, February.

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