Fund Performance Robustness: An Evaluation Using European Large-Cap Equity Funds

26 Pages Posted: 29 Feb 2012

See all articles by Kenneth Högholm

Kenneth Högholm

Hanken School of Economics - Department of Finance and Statistics

Johan Knif

Hanken School of Economics / Department of Finance and Statistics

Seppo Pynnonen

University of Vaasa, Department of Mathematics and Statistics

Date Written: October 1, 2011

Abstract

The paper revisits the issue of robustness of fund performance by evaluating European large-cap equity funds. For this fund category traditional market risk factor adjusted performance measures are expected to be fairly robust. However, for the sample of 65 European large-cap mutual equity funds, performance is shown to be very sensitive to the empirical estimation approach applied. Furthermore, the performance alphas are not robust over the conditional residual return distribution. This indicates that the performance is asymmetric with respect to the conditional outcome. A large part of the individual funds significantly under perform the benchmark in the lower tail of the conditional distribution. From a risk-averse investor’s point of view, the results regarding the performance of an equally weighted fund of funds, is more comforting. On average the performance alphas are positive and highest in the lower part of the conditional distribution. As expected the market risk factor loadings are very robust for the sample of large-cap equity funds.

Keywords: Fund Performance, Robustness, European Equity Funds

JEL Classification: G11, G12, G14

Suggested Citation

Högholm, Kenneth and Knif, Johan Anders and Pynnonen, Seppo, Fund Performance Robustness: An Evaluation Using European Large-Cap Equity Funds (October 1, 2011). Frontiers in Finance and Economics, Vol. 8, No. 2, pp. 1-26, 2011. Available at SSRN: https://ssrn.com/abstract=2012477

Kenneth Högholm

Hanken School of Economics - Department of Finance and Statistics ( email )

P.O. Box 287
FIN-65101 Vasa
Finland

Johan Anders Knif (Contact Author)

Hanken School of Economics / Department of Finance and Statistics ( email )

P.O. Box 287
FIN-65101 Vasa
Finland
+358 50 589 2612 (Phone)
+358 6 3533 703 (Fax)

HOME PAGE: http://www.hanken.fi/staff/jknif/

Seppo Pynnonen

University of Vaasa, Department of Mathematics and Statistics ( email )

Wolffintie 34
65200 Vaasa
Finland
+358-21-449 8311 (Phone)

HOME PAGE: http://www.uva.fi/~sjp/

Register to save articles to
your library

Register

Paper statistics

Downloads
73
Abstract Views
574
rank
317,979
PlumX Metrics