Mutual Fund Performance and Seemingly Unrelated Assets
44 Pages Posted: 27 Feb 2001
Date Written: April 2001
Estimates of standard performance measures can be improved by using returns on assets not used to de?ne those measures. Alpha, the intercept in a regression of a fund's return on passive benchmark returns, can be estimated more precisely by using information in returns on non-benchmark passive assets, whether or not one believes those assets are priced by the benchmarks. A fund's Sharpe ratio can be estimated more precisely by using returns on other assets as well as the fund. New estimates of these performance measures for a large universe of equity mutual funds exhibit substantial dierences from the usual estimates.
Keywords: Performance evaluation; Mutual funds; Bayesian analysis
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