Mutual Fund's Net Economic Alpha: Definition and Evidence
Journal of Investment Management (JOIM), Second Quarter 2013
38 Pages Posted: 15 Jun 2013 Last revised: 16 Jun 2013
Date Written: June 14, 2013
It is sometimes argued that existing methodologies for assessing mutual fund's performance are unfair, as fund's return is taken net of expenses and benchmark return is gross of expenses. Examining over 1000 U.S. non-specialized mutual funds in 2001-2009, we nd that the abovementioned problem is minute - the net economic alpha, an alpha that accounts for the actual costs of investing in benchmarks via ETFs, yields similar fund's ranking and classi cation as the traditional methods. Also interesting, the average net economic alpha is only slightly negative, suggesting that the mutual funds industry is not inferior.
Keywords: Mutual funds, performance evaluation
JEL Classification: G00
Suggested Citation: Suggested Citation