Abstract: | A test procedure, derived from arbitrage pricing theory, that permits the measurement of the security selection performance of professional portfolio managers is developed and applied to a sample of mutual funds over the period of the 1970's. The evidence indicates that more than one factor was present in the market during that interval as a systematic influence on the profile of securities returns. Consistent with prior studies, the evidence also suggests that mutual fund portfolios did not outperform a passive buy-and-hold investment strategy. A comparative analysis of the same data, using performance measures based on the single-factor market model, produces similar but less powerful results, both in the aggregate and at the individual fund level. |