Review of Quantitative Finance and Accounting, Vol. 1, No. 1, pp. 5-26, 1990
38 Pages Posted: 25 Oct 2011
Date Written: May 1, 1990
This article examines the risk and return characteristics of U.S. mutual funds. We employ an equilibrium version of the Arbitrage Pricing Theory (APT) and a principal-components-based statistical technique to identify performance benchmarks. We also consider the Capital Asset Pricing Model (CAPM) as an alternative. We implement a procedure for overcoming the rotational indeterminacy of factor models. This procedure is a hybrid of statistical factor estimation and prespecification of factors. We estimate measures of timing ability for the CAPM and extend it to the APT. We find that this timing test is misspecified due to noninformation-based changes in mutual fund betas. We develop a modification of the timing measure that, under certain conditions, distinguishes true timing ability from noninformation-based beta changes.
Keywords: Mutual Funds, Portfolio Performance, Arbitrage Pricing Theory, APT, CAPM, Market Timing
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation
Connor, Gregory and Korajczyk, Robert A., The Attributes, Behavior, and Performance of U.S. Mutual Funds (May 1, 1990). Review of Quantitative Finance and Accounting, Vol. 1, No. 1, pp. 5-26, 1990. Available at SSRN: https://ssrn.com/abstract=1949099