Estimating the Dynamics of Mutual Fund Alphas and Betas

Posted: 26 Jun 2008

See all articles by Harry Mamaysky

Harry Mamaysky

Columbia University - Columbia Business School

Matthew I. Spiegel

Yale University - Yale School of Management, International Center for Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 2008

Abstract

This article develops a Kalman filter model to track dynamic mutual fund factor loadings. It then uses the estimates to analyze whether managers with market-timing ability can be identified ex ante. The primary findings are as follows: (i) Ordinary least squares (OLS) timing models produce false positives (nonzero alphas) at too high a rate with either daily or monthly data. In contrast, the Kalman filter model produces them at approximately the correct rate with monthly data; (ii) In monthly data, though the OLS models fail to detect any timing among fund managers, the Kalman filter does; (iii) The alpha and beta forecasts from the Kalman model are more accurate than those from the OLS timing models; (iv) The Kalman filter model tracks most fund alphas and betas better than OLS models that employ macroeconomic variables in addition to fund returns.

JEL Classification: G12, G14, G23, C01, C12, C13, C52, C53

Suggested Citation

Mamaysky, Harry and Spiegel, Matthew I. and Zhang, Hong, Estimating the Dynamics of Mutual Fund Alphas and Betas (January 2008). The Review of Financial Studies, Vol. 21, Issue 1, pp. 233-264, 2008. Available at SSRN: https://ssrn.com/abstract=1151582 or http://dx.doi.org/10.1093/rfs/hhm049

Harry Mamaysky

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Matthew I. Spiegel

Yale University - Yale School of Management, International Center for Finance ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6017 (Phone)
203-432-8931 (Fax)

HOME PAGE: http://som.yale.edu/~spiegel

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

HOME PAGE: http://eng.pbcsf.tsinghua.edu.cn/content/details167_7995_x.html

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