Holdings Data, Security Returns and the Selection of Superior Mutual Funds

59 Pages Posted: 21 Feb 2007 Last revised: 10 Mar 2010

See all articles by Edwin J. Elton

Edwin J. Elton

New York University (NYU) - Department of Finance

Martin J. Gruber

New York University (NYU) - Department of Finance

Christopher R. Blake

Fordham University - Gabelli School of Business

Date Written: July 8, 2009

Abstract

In this paper we show that selecting mutual funds using alpha computed from a fund’s holdings and security betas produces better future alphas than selecting funds using alpha computed from a time series regression on fund returns. This is true whether future alphas are computed using holdings and security betas or a time series regression on fund returns. Furthermore, we show that the more frequently the holdings data are available, the greater the benefit. This has major implications for the SEC’s recent ruling on the frequency of holdings disclosure and the information plan sponsors should collect from portfolio managers. We also explore the effect of conditioning betas on macro variables as suggested by Ferson and Schadt (1996) to identify superior-performing mutual funds as well as the alternative way of employing holdings data proposed by Grinblatt and Titman (1993).

Keywords: mutual funds, portfolios, composition, performance prediction

JEL Classification: G11, G12

Suggested Citation

Elton, Edwin J. and Gruber, Martin J. and Blake, Christopher R., Holdings Data, Security Returns and the Selection of Superior Mutual Funds (July 8, 2009). Available at SSRN: https://ssrn.com/abstract=964274 or http://dx.doi.org/10.2139/ssrn.964274

Edwin J. Elton (Contact Author)

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
Ste 9-190
New York, NY 10012-1126
United States
212-998-0361 (Phone)
212-995-4233 (Fax)

Martin J. Gruber

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
Ste 9-190
New York, NY 10012-1126
United States
212-998-0333 (Phone)
212-995-4233 (Fax)

Christopher R. Blake

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Lowenstein Building
New York, NY 10023
United States
212-636-6750 (Phone)

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