Double-Adjusted Mutual Fund Performance
Review of Asset Pricing Studies, Forthcoming
64 Pages Posted: 1 Nov 2014 Last revised: 30 Jun 2020
Date Written: May 12, 2020
Abstract
Mutual fund returns are significantly related to stock characteristics in the cross section after controlling for risk via factor models. We develop a new double-adjusted approach that controls for both factor-model betas and stock characteristics in one performance measure. The new measure substantially affects performance rankings, with a quarter of funds experiencing a change in percentile ranking greater than ten. Double-adjusted performance produces strong evidence of persistence in relative performance. Inference based on the new measure often differs, sometimes dramatically, from that based on traditional performance estimates
Keywords: Manager skill, double-adjusted performance, factor model, stock characteristics, mutual funds
JEL Classification: G11, G23, J24
Suggested Citation: Suggested Citation