Fund Performance Measurement Respecting an Industry Benchmark
70 Pages Posted: 23 Nov 2019 Last revised: 22 Jan 2020
Date Written: August 29, 2019
We develop an axiomatically consistent way of ranking and scoring funds that respects an industry benchmark. Our performance measure, termed MAP, accounts for the feature that investors may exhibit skepticism when evaluating investment strategies versus a benchmark. Linking developed theory to data and using the CRSP value-weighted index as the benchmark, we feature evidence on (i) desirability of popular investment strategies, (ii) whether investors gain by selling the tails of return distributions, (iii) rank-ordering of actively managed mutual funds, (iv) predicting fund flows using MAP, (v) variables that forecast MAP performance of mutual funds, and (vi) distribution of fund performance.
Keywords: mutual fund, benchmark, ambiguity aversion
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