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Double-Adjusted Mutual Fund Performance
[Mutual fund’s R2 as predictor of performance]

Author

Listed:
  • Jeffrey A Busse
  • Lei Jiang
  • Yuehua Tang

Abstract

Mutual fund returns are significantly related to stock characteristics in the cross-section after controlling for risk via factor models. We develop a new double-adjusted approach that controls for both factor model betas and stock characteristics in one performance measure. The new measure substantially affects performance rankings, with a quarter of funds experiencing a change in their percentile ranking greater than 10. Double-adjusted performance produces strong evidence of persistence in relative performance. Inference based on the new measure often differs, sometimes dramatically, from that based on traditional performance estimates.Received November 22, 2019; editorial decision June 28, 2020; Editor: Jeffrey Pontiff. Authors have furnished an Internet Appendix,which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Jeffrey A Busse & Lei Jiang & Yuehua Tang, 2021. "Double-Adjusted Mutual Fund Performance [Mutual fund’s R2 as predictor of performance]," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 11(1), pages 169-208.
    • Handle: RePEc:oup:rasset:v:11:y:2021:i:1:p:169-208.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raaa011
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    Citations

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    Cited by:

    1. Ding, Jing & Jiang, Lei & Liu, Xiaohui & Peng, Liang, 2023. "Nonparametric tests for market timing ability using daily mutual fund returns," Journal of Economic Dynamics and Control, Elsevier, vol. 150(C).
    2. Bai, John Jianqiu & Tang, Yuehua & Wan, Chi & Yüksel, H. Zafer, 2022. "Fund manager skill in an era of globalization: Offshore concentration and fund performance," Journal of Financial Economics, Elsevier, vol. 145(2), pages 18-40.
    3. Lin, Jia-Hui & Yen, Meng-Feng & Hsieh, Wei-Cheng, 2023. "Do manager characteristics matter in equity mutual fund performance? New evidence based on the double-adjusted alpha," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).

    More about this item

    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
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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