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Fund Managers May Cause Their Benchmarks To Be Priced “Risks”

In: The World Of Risk Management

Author

Listed:
  • Michael Stutzer

    (Professor of Finance and Director, Burridge Center for Securities Analysis and Valuation, University of Colorado, 419 UCB, Boulder, CO 80309-0419, USA)

Abstract

The presence of a positive intercept (“alpha”) in a regression of an investment fund's excess returns on a broad market portfolio's excess return (as in the CAPM), and other “factor” portfolios' excess returns (e.g., the Fama and French factors) is frequently interpreted as evidence of superior fund performance. This paper theoretically and empirically supports the notion that the additional factors may proxy for benchmark portfolios that fund managers try to beat, rather than proxying for state variables of future risks that investors (in conventional theory) are supposed to care about.

Suggested Citation

  • Michael Stutzer, 2005. "Fund Managers May Cause Their Benchmarks To Be Priced “Risks”," World Scientific Book Chapters, in: H Gifford Fong (ed.), The World Of Risk Management, chapter 10, pages 203-218, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812700865_0010
    as

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