Conditional benchmarks and predictors of mutual fund performance

Scott Cederburg, Michael S. O’Doherty, N. E. Savin, Ashish Tiwari

Research output: Contribution to journalArticle

Abstract

Recent studies link mutual fund performance to measures of active management, and this evidence often takes the form of large spreads in unconditional alphas for characteristic-sorted portfolios. Unconditional benchmarks can, however, produce misleading inferences on managerial skill for strategies that exhibit substantial turnover and unstable factor exposures. We propose a performance attribution model that accounts for predictable changes in portfolio style. Compared to existing methods, our benchmarks yield superior tracking performance and a more powerful statistical assessment of abnormal returns. We re-evaluate six active management proxies using our method and conclude that these measures are largely unrelated to managerial ability.

Original languageEnglish (US)
Pages (from-to)331-372
Number of pages42
JournalCritical Finance Review
Volume7
Issue number2
DOIs
StatePublished - Jan 1 2018

Keywords

  • Conditional benchmarks
  • Mutual funds
  • Performance evaluation

ASJC Scopus subject areas

  • Finance

Fingerprint Dive into the research topics of 'Conditional benchmarks and predictors of mutual fund performance'. Together they form a unique fingerprint.

  • Cite this