Should Benchmark Indices Have Alpha? Revisiting Performance Evaluation

54 Pages Posted: 26 Mar 2008 Last revised: 26 Jan 2010

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame

Antti Petajisto

New York University (NYU) - Department of Finance; Yale School of Management; BlackRock, Inc

Eric Zitzewitz

Dartmouth College; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: January 21, 2010


Standard Fama-French and Carhart models produce economically and statistically significant nonzero alphas even for passive benchmark indices such as the S&P 500 and Russell 2000. We find that these alphas primarily arise from the disproportionate weight the Fama-French factors place on small value stocks which have performed well, and from the CRSP value-weighted market index which is historically a downward-biased benchmark for U.S. stocks. We explore alternative ways to construct these factors and propose alternative models constructed from common and easily tradable benchmark indices. The index-based models outperform the standard models in common applications such as performance evaluation of mutual fund managers.

Keywords: performance evaluation, benchmark index, factor model, Fama-French, Carhart

JEL Classification: G10, G12, G14, G20, G23

Suggested Citation

Cremers, K. J. Martijn and Petajisto, Antti and Zitzewitz, Eric W., Should Benchmark Indices Have Alpha? Revisiting Performance Evaluation (January 21, 2010). EFA 2009 Bergen Meetings Paper; AFA 2010 Atlanta Meetings Paper. Available at SSRN: or

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Antti Petajisto (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0378 (Phone)


Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States


BlackRock, Inc ( email )

400 Howard St
San Francisco, CA 94105
United States
415-670-7911 (Phone)

Eric W. Zitzewitz

Dartmouth College ( email )

Hanover, NH 03755
United States
603-646-2891 (Phone)
603-646-2122 (Fax)


NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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