The Dynamics of Average Mutual Fund Alphas
31 Pages Posted: 16 Dec 2009
Date Written: December 5, 2009
The average alpha of mutual funds is an indication of whether it pays off to invest in actively managed funds. In this study we show that a substantial part of the variation in the average alpha can be explained by exogenous factors. The most important factors are the average expense ratio, the ratio between skilled and unskilled funds, and combining the average turnover ratio with the skill ratio and trading costs. The latter shows that average turnover hurts the average funds performance due to there not being enough skilled funds.
Keywords: mutual funds, risk-adjusted returns, dynamics of alphas
JEL Classification: G11, G14, G19
Suggested Citation: Suggested Citation