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The Attributes, Behavior, and Performance of U.S. Mutual Funds

Review of Quantitative Finance and Accounting, Vol. 1, No. 1, pp. 5-26, 1990

38 Pages Posted: 25 Oct 2011  

Gregory Connor

London School of Economics & Political Science (LSE) - Department of Accounting and Finance

Robert A. Korajczyk

Northwestern University - Kellogg School of Management

Date Written: May 1, 1990

Abstract

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

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

Gregory Connor

London School of Economics & Political Science (LSE) - Department of Accounting and Finance ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 702 955-6407 (Phone)
+44 702 955-7420 (Fax)

Robert A. Korajczyk (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

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