Benchmark Discrepancies and Mutual Fund Performance Evaluation

77 Pages Posted: 17 May 2018 Last revised: 30 Jul 2019

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame

Jon A. Fulkerson

University of Dayton

Timothy B. Riley

University of Arkansas - Department of Finance

Date Written: July 29, 2019

Abstract

We introduce a new holdings-based procedure to identify whether a mutual fund has a benchmark discrepancy, 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, the funds on average outperform their prospectus benchmarks—before further risk-adjusting—despite underperforming the benchmarks that best match their portfolios. High active share funds outperform to a greater degree if there is no benchmark discrepancy, suggesting that active managers with more skill are less likely to have a benchmark discrepancy.

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

Suggested Citation

Cremers, K. J. Martijn and Fulkerson, Jon A. and Riley, Timothy Brandon, Benchmark Discrepancies and Mutual Fund Performance Evaluation (July 29, 2019). 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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