Benchmark Discrepancies and Mutual Fund Performance Evaluation

68 Pages Posted: 17 May 2018  

Martijn Cremers

University of Notre Dame

Jon A. Fulkerson

University of Dayton

Timothy B. Riley

University of Arkansas - Department of Finance

Date Written: May 3, 2018

Abstract

We introduce a new holdings-based procedure to identify benchmark discrepancies of mutual funds, which we define as a benchmark other than the prospectus benchmark best matching a fund’s investment strategy. Funds with a benchmark discrepancy tend to be riskier than their prospectus benchmarks indicate. As a result, those funds on average outperform their prospectus benchmark – before risk-adjusting – despite generally under performing the benchmark that best matches their holdings. High active share funds outperform more if there is no benchmark discrepancy, suggesting that managers with more skill are less likely to have a benchmark discrepancy.

Keywords: mutual funds, benchmarks, holdings, performance, active share

Suggested Citation

Cremers, Martijn and Fulkerson, Jon A. and Riley, Timothy B., Benchmark Discrepancies and Mutual Fund Performance Evaluation (May 3, 2018). Available at SSRN: https://ssrn.com/abstract=3173437 or http://dx.doi.org/10.2139/ssrn.3173437

K. J. Martijn Cremers (Contact Author)

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Jon A. Fulkerson

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

Timothy Brandon Riley

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

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