Evaluating managed fund performance using conditional measures: Australian evidence

Most studies of managed fund performance use measures that are susceptible to bias caused by common time variation in risks and risk premia. We evaluate the performance of Australian managed funds 1983–1995 using lagged public information variables that have been shown to predict stock returns, such as interest rates and dividend yields, to control for the variation. The results indicate an improvement in performance relative to traditional measures and confirm the importance of using conditioning information, especially dividend yield, in performance evaluation. Jensen alphas are higher when estimated with the conditional model and the number of significant timing coefficients is greatly reduced.