Revisiting Mutual Fund Performance Evaluation
AbstractMutual fund manager excess performance should be measured relative to their self-reported benchmark rather than the return of a passive portfolio with the same risk characteristics. Ignoring the self-reported benchmark introduces biases in the measurement of stock selection and timing components of excess performance. We revisit baseline empirical evidence in mutual fund performance evaluation utilizing stock selection and timing measures that address these biases. We introduce a new factor exposure based approach for measuring the – static and dynamic – timing capabilities of mutual fund managers. We overall conclude that current studies are likely to be overstating lack of skill because they ignore the managers’ self-reported benchmark in the performance evaluation process.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 36644.
Date of creation: 02 Feb 2012
Date of revision:
Mutual funds; short-term performance; market timing; factor timing;
Other versions of this item:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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