Download This PaperMutual Fund Performance at Long Horizons
70 Pages Posted: 5 May 2022 Last revised: 29 Oct 2022
Date Written: October 22, 2022
Abstract
The percentage of U.S. equity mutual funds that outperform the SPY ETF over the last 30 years decreases substantially as the horizon over which returns are measured is increased. Further, some funds with positive monthly alpha estimates have negative long-horizon abnormal returns. These results reflect positive skewness in the distribution of fund returns that increases with horizon, and highlight the limitations of conditional arithmetic means of short-horizon returns (e.g. alpha) for long-horizon investors. We tabulate an aggregate wealth loss of $1.02 trillion to mutual fund investors over our 30-year sample, when opportunity costs are based on beta-adjusted SPY returns.
JEL Classification: G10, G23
Suggested Citation: Suggested Citation
Feng Zhang (Contact Author)
Southern Methodist University (SMU) - Finance Department ( email )
SMU Cox School of Business
6212 Bishop Blvd
Dallas, TX 75275
United States
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