IDEAS home Printed from https://ideas.repec.org/a/now/jnlcfr/104.00000131.html
   My bibliography  Save this article

Better Performance of Mutual Funds with Lower R2’s Does Not Suggest that Active Management Pays

Author

Listed:
  • Juan Carlos Matallín-Sáez

Abstract

We found a negative relation between mutual funds’ past R2 and their abnormal performance, as did Amihud and Goyenko (2013), who proposed measuring active management of mutual funds by 1−R2. The interpretation of this relationship would be that active management pays. However the same evidence is uncovered for artificial investments, due only to the behavior of the types of stocks they are holding. Therefore, we introduce a new factor, ImS (idiosyncratic minus systematic), defined as the difference between the stocks’ returns with lower and higher past R2 which captures this behavior. After adjusting for this factor, the initial evidence vanishes and abnormal performance associated with past R2 diminishes, even taking negative values for mutual funds.

Suggested Citation

  • Juan Carlos Matallín-Sáez, 2023. "Better Performance of Mutual Funds with Lower R2’s Does Not Suggest that Active Management Pays," Critical Finance Review, now publishers, vol. 12(1-4), pages 367-387, August.
  • Handle: RePEc:now:jnlcfr:104.00000131
    DOI: 10.1561/104.00000131
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1561/104.00000131
    Download Restriction: no

    File URL: https://libkey.io/10.1561/104.00000131?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    Performance; Idiosyncratic risk; R squared; Mutual fund; Active management;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:now:jnlcfr:104.00000131. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucy Wiseman (email available below). General contact details of provider: http://www.nowpublishers.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.