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Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons
Author(s) -
LEHMANN BRUCE N.,
MODEST DAVID M.
Publication year - 1987
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1987.tb02566.x
Subject(s) - benchmark (surveying) , mutual fund , computer science , context (archaeology) , econometrics , measure (data warehouse) , construct (python library) , benchmarking , similarity (geometry) , target date fund , variety (cybernetics) , data mining , economics , artificial intelligence , finance , open end fund , paleontology , corporate governance , management , geodesy , institutional investor , image (mathematics) , biology , programming language , geography
ABSTRACT The authors' main goal in this paper is to ascertain whether conventional measures of abnormal mutual fund performance are sensitive to the benchmark chosen to measure normal performance. They employ the standard CAPM benchmarks and a variety of APT benchmarks to investigate this question. They find little similarity between the absolute and relative mutual fund rankings obtained from these alternative benchmarks, which suggests the importance of knowing the appropriate model for risk and return in this context. In addition, the rankings are not insensitive to the method used to construct the APT benchmark. Finally, they find statistically significant measured abnormal performance using all the benchmarks. The economic explanation for this phenomenon appears to be an open question.