How to Measure Mutual Fund Performance: Economic Versus Statistical Relevance

20 Pages Posted: 6 Jul 2004

See all articles by Rogér Otten

Rogér Otten

Maastricht University - Limburg Institute of Financial Economics (LIFE)

Dennis Bams

University of Maastricht - Limburg Institute of Financial Economics (LIFE)

Abstract

In the present paper a comprehensive assessment of existing mutual fund performance models is presented. Using a survivor-bias free database of all US mutual funds, we explore the added value of introducing extra variables such as size, book-to-market, momentum and a bond index. In addition to that we evaluate the use of introducing time-variation in betas and alpha. The search for the most suitable model to measure mutual fund performance will be addressed along two lines. First, we are interested in the statistical significance of adding more factors to the single factor model. Second, we focus on the economic importance of more elaborate model specifications. The added value of the present study lies both in the step-wise process of identifying relevant factors, and the use of a rich US mutual fund database that was recently released by the Center for Research in Security Prices.

Keywords: Mutual funds, performance evaluation, benchmarks, market efficiency

JEL Classification: G11, G23

Suggested Citation

Otten, Rogér and Bams, Dennis, How to Measure Mutual Fund Performance: Economic Versus Statistical Relevance. Accounting and Finance, Vol. 44, No. 2, pp. 203-222, July 2004. Available at SSRN: https://ssrn.com/abstract=544290

Rogér Otten

Maastricht University - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3838 (Phone)
+31 43 388 4875 (Fax)

HOME PAGE: http://www.fdewb.unimaas.nl/finance/faculty/Otten

Dennis Bams

University of Maastricht - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3838 (Phone)
+31 43 325 8530 (Fax)

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