The effect of portfolio weighting on investment performance evaluation: The case of actively managed mutual funds |
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| Authors: | Stanley B Block Dan W French |
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| Institution: | (1) M. J. Neeley School of Business, Texas Christian University, 76129 Fort Worth, TX;(2) Department of Finance, College of Business Administration and Economics, New Mexico State University, 88003 Las Cruces, NM |
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| Abstract: | Among the factors influencing investment performance measurement is the weight dedicated to each security. This paper develops
metrics for measuring the extent of equal weighting and value weighting of a portfolio. A sample of 506 actively managed mutual
funds shows that funds tend to be equally weighted to a greater degree than they are value weighted, implying that investment
performance based solely on a single value-weighted benchmark may not adequately identify excess performance. We propose a
two-factor model utilizing both a value-weighted and an equally weighted index and show that the model provides a better fit
than the single-index model.(JEL G1) |
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