Mutual Fund Performance at Long Horizons

70 Pages Posted: 5 May 2022 Last revised: 29 Oct 2022

See all articles by Hendrik Bessembinder

Hendrik Bessembinder

W.P. Carey School of Business

Michael J. Cooper

University of Utah - David Eccles School of Business

Feng Zhang

Southern Methodist University (SMU) - Finance Department

Date Written: October 22, 2022

Abstract

The percentage of U.S. equity mutual funds that outperform the SPY ETF over the last 30 years decreases substantially as the horizon over which returns are measured is increased. Further, some funds with positive monthly alpha estimates have negative long-horizon abnormal returns. These results reflect positive skewness in the distribution of fund returns that increases with horizon, and highlight the limitations of conditional arithmetic means of short-horizon returns (e.g. alpha) for long-horizon investors. We tabulate an aggregate wealth loss of $1.02 trillion to mutual fund investors over our 30-year sample, when opportunity costs are based on beta-adjusted SPY returns.

JEL Classification: G10, G23

Suggested Citation

Bessembinder, Hendrik (Hank) and Cooper, Michael J. and Zhang, Feng, Mutual Fund Performance at Long Horizons (October 22, 2022). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=4096205 or http://dx.doi.org/10.2139/ssrn.4096205

Hendrik (Hank) Bessembinder

W.P. Carey School of Business ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

HOME PAGE: http://isearch.asu.edu/profile/2717225

Michael J. Cooper

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Feng Zhang (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

SMU Cox School of Business
6212 Bishop Blvd
Dallas, TX 75275
United States

HOME PAGE: http://https://sites.google.com/view/fengzhangfin

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
2,629
Abstract Views
6,460
Rank
10,035
PlumX Metrics