Self-Declared Benchmarks and Fund Manager Intent: 'Cheating' or Competing?

69 Pages Posted: 6 May 2022 Last revised: 23 May 2024

See all articles by Huaizhi Chen

Huaizhi Chen

University of Notre Dame - Department of Finance

Richard B. Evans

University of Virginia - Darden School of Business

Yang Sun

Brandeis University- International Business School

Date Written: May 23, 2024

Abstract

Using a panel of self-declared benchmarks, we examine funds’ use of mismatched benchmarks over time. Mismatching is high at the beginning of our sample (45% of TNA in 2008), consistent with prior studies, but declines significantly over time (27% in 2020), driven by existing specialized funds changing benchmarks to match their style. Market forces including investor learning, institutional investor governance, market competition, and product positioning all play a role in the benchmark correction decisions. For broad funds, mismatched benchmarks are not associated with a performance bias. Our study highlights the value of market solutions in aligning manager-investor interests.

Keywords: Mutual Fund, Benchmarks, Benchmarking, Performance Evaluation

JEL Classification: G1, G11, G2, G23

Suggested Citation

Chen, Huaizhi and Evans, Richard B. and Sun, Yang, Self-Declared Benchmarks and Fund Manager Intent: 'Cheating' or Competing? (May 23, 2024). Available at SSRN: https://ssrn.com/abstract=4099685 or http://dx.doi.org/10.2139/ssrn.4099685

Huaizhi Chen (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Richard B. Evans

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)

HOME PAGE: http://faculty.darden.virginia.edu/evansr/

Yang Sun

Brandeis University- International Business School ( email )

415 South Street MS032
Waltham, MA 02453
United States
781-736-4708 (Phone)

HOME PAGE: http://www.brandeis.edu/facultyguide/person.html?emplid=c82c39a3be3416bc5844f2049d540871fd331eaf

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