Improved Inference in the Evaluation of Mutual Fund Performance Using Panel Bootstrap Methods

Pensions Institute, Discussion Paper PI-1405

28 Pages Posted: 22 Mar 2016

See all articles by David P. Blake

David P. Blake

City, University of London

Tristan Caulfield

University College London

Christos Ioannidis

University of Bath-Department of Economics

Ian Tonks

University of Bristol - Department of Finance and Accounting

Date Written: June 21, 2014

Abstract

Two new methodologies are introduced to improve inference in the evaluation of mutual fund performance against benchmarks. First, the benchmark models are estimated using panel methods with both fund and time effects. Second, the non-normality of individual mutual fund returns is accounted for by using panel bootstrap methods. We also augment the standard benchmark factors with fund-specific characteristics, such as fund size. Using a dataset of UK equity mutual fund returns, we find that fund size has a negative effect on the average fund manager’s benchmark-adjusted performance. Further, when we allow for time effects and the non-normality of fund returns, we find that there is no evidence that even the best performing fund managers can significantly out-perform the augmented benchmarks after fund management charges are taken into account.

Keywords: mutual funds, unit trusts, open-ended investment companies, performance measurement, factor benchmark models, panel methods, bootstrap methods.

JEL Classification: C15, C58, G11, G23

Suggested Citation

Blake, David P. and Caulfield, Tristan and Ioannidis, Christos and Tonks, Ian, Improved Inference in the Evaluation of Mutual Fund Performance Using Panel Bootstrap Methods (June 21, 2014). Pensions Institute, Discussion Paper PI-1405, Available at SSRN: https://ssrn.com/abstract=2752554 or http://dx.doi.org/10.2139/ssrn.2752554

David P. Blake (Contact Author)

City, University of London ( email )

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Tristan Caulfield

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Christos Ioannidis

University of Bath-Department of Economics ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Ian Tonks

University of Bristol - Department of Finance and Accounting ( email )

Department of Finance and Accounting
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

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