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Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons

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  • Lehmann, Bruce N
  • Modest, David M

Abstract

The main goal in this paper is to gauge the sensitivity of conventional measures of abnormal mutual-fund performance to the benchmark chosen to measure normal performance. The authors employed standard CAPM benchmarks and a variety of APT benchmarks to investigate this question and found little similarity between the absolute and relative rankings implied by them. Hence, both the model for risk and return and the method used to construct the APT benchmark are important choices in this context. Finally, the authors found statistically significant measured abnormal performance using all benchmarks. The economic interpretation of this phenomenon appears to be an open question. Copyright 1987 by American Finance Association.

Suggested Citation

  • Lehmann, Bruce N & Modest, David M, 1987. " Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, vol. 42(2), pages 233-265, June.
  • Handle: RePEc:bla:jfinan:v:42:y:1987:i:2:p:233-65
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    References listed on IDEAS

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    1. Jaffee, Dwight M & Modigliani, Franco, 1969. "A Theory and Test of Credit Rationing," American Economic Review, American Economic Association, vol. 59(5), pages 850-872, December.
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    4. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    5. Dwight M. Jaffee & Thomas Russell, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 651-666.
    6. Chari, V V & Jagannathan, Ravi, 1989. " Adverse Selection in a Model of Real Estate Lending," Journal of Finance, American Finance Association, vol. 44(2), pages 499-508, June.
    7. Chan, Yuk-Shee & Kanatas, George, 1985. "Asymmetric Valuations and the Role of Collateral in Loan Agreements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(1), pages 84-95, February.
    8. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
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