The Beta Anomaly and Mutual Fund Performance

47 Pages Posted: 10 Dec 2018 Last revised: 18 Apr 2022

See all articles by Paul J. Irvine

Paul J. Irvine

Neeley School of Business

Jeong Ho (John) Kim

Emory University - Department of Economics

Jue Ren

Texas Christian University - M.J. Neeley School of Business

Date Written: April 13, 2022

Abstract

We find evidence for the beta anomaly in mutual fund performance. This anomaly is not accounted for in the standard four-factor framework, nor by the addition of a betting-against-beta factor to the benchmark model. We identify the active component of alpha (active alpha) not attributable to the passive effects related to beta. Active alpha is persistent and associated with superior portfolio performance. We find that, while many investors use standard alpha to allocate capital, a subset of sophisticated investors allocate their money based on active alpha. Our procedure is useful across the commonly used benchmark models for measuring performance, and can be extended to accommodate other potential factor beta anomalies.

Keywords: Performance Evaluation, Beta Anomaly, Mutual Fund, Active Alpha

JEL Classification: G20, G23, G11

Suggested Citation

Irvine, Paul J. and Kim, Jeong Ho (John) and Ren, Jue, The Beta Anomaly and Mutual Fund Performance (April 13, 2022). Available at SSRN: https://ssrn.com/abstract=3285885 or http://dx.doi.org/10.2139/ssrn.3285885

Paul J. Irvine

Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Jeong Ho (John) Kim (Contact Author)

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

HOME PAGE: http://economics.emory.edu/home/people/faculty/kim-john.html

Jue Ren

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

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