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Fund Performance Robustness An Evaluation Using European Large-Cap Equity Funds

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  • Kenneth Högholm1, Johan Knif, Seppo Pynnönen

    () (Hanken School of Economics, Finland)

Abstract

The paper revisits the issue of robustness of fund performance by evaluating European large-cap equity funds. For this fund category traditional market risk factor adjusted performance measures are expected to be fairly robust. However, for the sample of 65 European large-cap mutual equity funds, performance is shown to be very sensitive to the empirical estimation approach applied. Furthermore, the performance alphas are not robust over the conditional residual return distribution. This indicates that the performance is asymmetric with respect to the conditional outcome. A large part of the individual funds significantly underperform the benchmark in the lower tail of the conditional distribution. From a risk-averse investor’s point of view, the results regarding the performance of an equally weighted fund of funds, is more comforting. On average the performance alphas are positive and highest in the lower part of the conditional distribution. As expected the market risk factor loadings are very robust for the sample of large-cap equity funds.

Suggested Citation

  • Kenneth Högholm1, Johan Knif, Seppo Pynnönen, 2011. "Fund Performance Robustness An Evaluation Using European Large-Cap Equity Funds," Frontiers in Finance and Economics, SKEMA Business School, vol. 8(2), pages 1-26, October.
  • Handle: RePEc:ffe:journl:v:8:y:2011:i:2:p:1-26
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    10. repec:fth:pennfi:67 is not listed on IDEAS
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    More about this item

    Keywords

    Fund Performance; Robustness; European Equity Funds;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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