Evaluating Mutual Fund Performance |
| |
Authors: | SP Kothari & Jerold B Warner |
| |
Institution: | Sloan School of Management, Massachusetts Institute of Technology,;William E. Simon Graduate School of Business Administration, University of Rochester |
| |
Abstract: | We study standard mutual fund performance measures, using simulated funds whose characteristics mimic actual funds. We find that performance measures used in previous mutual fund research have little ability to detect economically large magnitudes (e.g., three percent per year) of abnormal fund performance, particularly if a fund's style characteristics differ from those of the value-weighted market portfolio. Power can be substantially improved, however, using event-study procedures that analyze a fund's stock trades. These procedures are feasible using time-series data sets on mutual fund portfolio holdings. |
| |
Keywords: | |
|
|