Mutual Fund Family Strategies and Bayesian Alphas
Markov Processes International LLC
January 8, 2012
Among the 5,000 equity mutual funds in the world, more than 80 percent belong to some fund family. A fund family is a group of mutual funds supervised by the same investment group. Despite the prevalence of the family organization, previous literature, when evaluating mutual fund performance, treated funds as though they were stand-alone entities. This is inappropriate if fund family follows some strategies that would affect the performance of its member funds, a phenomenon already documented in resent literature. In this paper, we address this issue by measuring mutual fund as part of a fund family. When evaluating individual fund performance, a Bayesian econometric technique enables us to incorporate different fund family strategies into consideration, thus produce a new performance measure. In empirical test, mutual funds selected based on our Bayesian alphas are showing more persistent in performance than those selected based on single or four factor alphas.
Number of Pages in PDF File: 24
Keywords: mutual fund, fund family, Bayesian Alphas, performance persistence
JEL Classification: G13, C11, C18
Date posted: January 8, 2012