The Beta Anomaly and Mutual Fund Performance

55 Pages Posted: 10 Dec 2018 Last revised: 13 Apr 2019

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 11, 2019

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 BAB factor to the benchmark model. We show how to extract the skill component of alpha that avoids the beta anomaly, which we call active alpha. Our procedure is useful regardless of the risk model investors use. 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 to funds with high active alpha.

Keywords: Performance evaluation, active alpha, beta anomaly, mutual fund

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 11, 2019). 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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