Matthew I. Spiegel () (Yale University, School of Management) Harry Mamaysky () (Yale University, School of Management) Hong Zhang () (Yale University, School of Management)
Abstract
Consider an economy in which the underlying security returns follow a linear factor model with constant coefficients. While portfolios that invest in these securities will, in general, have a linear factor structure, it will be one with time-varying coefficients. However, under certain assumptions regarding the portfolio's investment strategy, it is possible to estimate these time varying alphas and betas. Importantly, this can be done without direct knowledge of either the portfolio manager's exact investment strategy or of the alphas and betas of the individual securities in which the portfolio invests. As other papers in the area of mutual fund performance measurement have found, overall there appears to be little evidence that, in aggregate, fund investors earn superior returns. Of course, even though the average fund may not produce a superior expected return, this need not be true of sub-populations. Using a dynamic coefficient model to find funds with superior expected returns produces fund of fund portfolios that substantially outperform the market benchmark. Furthermore, these portfolios outperform portfolios selected using the traditional OLS approach. Bootstrapped estimates indicate that the median return produced by the Kalman filter produced by the Kalman filter selected funds exceeds those selected via OLS by over 1.6% under the single factor market benchmark, and 1.2% under the four factor Carhart benchmark.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Swinkels, L. & Sluis, P.J. van der & Verbeek, M.J.C.M., 2003.
"Market timing: A decomposition of mutual fund returns,"
Research Paper
ERS-2003-074-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
[Downloadable!]