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The Attributes, Behavior, and Performance of U.S. Mutual FundsGregory ConnorLondon School of Economics & Political Science (LSE) - Department of Accounting and Finance Robert A. KorajczykNorthwestern University - Kellogg School of Management May 1, 1990 Review of Quantitative Finance and Accounting, Vol. 1, No. 1, pp. 5-26, 1990 Abstract: This article examines the risk and return characteristics of U.S. mutual funds. We employ an equilibrium version of the Arbitrage Pricing Theory (APT) and a principal-components-based statistical technique to identify performance benchmarks. We also consider the Capital Asset Pricing Model (CAPM) as an alternative. We implement a procedure for overcoming the rotational indeterminacy of factor models. This procedure is a hybrid of statistical factor estimation and prespecification of factors. We estimate measures of timing ability for the CAPM and extend it to the APT. We find that this timing test is misspecified due to noninformation-based changes in mutual fund betas. We develop a modification of the timing measure that, under certain conditions, distinguishes true timing ability from noninformation-based beta changes.
Number of Pages in PDF File: 38 Keywords: Mutual Funds, Portfolio Performance, Arbitrage Pricing Theory, APT, CAPM, Market Timing JEL Classification: G10, G12, G14 Accepted Paper SeriesDate posted: October 25, 2011Suggested CitationContact Information
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