Benchmark Discrepancies and Mutual Fund Performance Evaluation

Cremers, K. J. Martijn; Fulkerson, Jon A.; Riley, Timothy B.

doi:10.1017/s0022109021000119

Cited by 33 publications

(7 citation statements)

References 48 publications

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“…This is different from the proposition of Berk and Green (2004), and the empirical findings in most of the previous literature, that benchmark-adjusted gross alphas are positive on average (e.g. Berk and van Binsbergen, 2015; Cremers et al. , 2022; Hunter et al.…”

Section: Baseline Bootstrap Resultscontrasting

confidence: 99%

Luck and skill in the performance of global equity funds in Central and Eastern Europe

Tapver

2022

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PurposeThe authors examine the performance of individual global equity funds in Central and Eastern Europe (CEE) and separate the skill of their fund managers from luck.Design/methodology/approachThe authors use cross-sectional bootstrap simulations to study the monthly net and gross returns of 175 funds over the period September 2005 to December 2019. Simulations are applied to three, four, and five-factor asset pricing models, and to regressions run on fund-specific benchmark indexes. The authors also examine the value added by all funds and by fund size groups.FindingsUsing multifactor models, a majority of the individual funds fail to deliver alpha, both net and gross of fees; whereas, most of the negative alphas appear due to poor skills, not bad luck. Relative to benchmark indexes, about 5% of the sample shows skill only gross of fees, indicating that fund management fees absorb this skill. As a whole, global equity funds in CEE add more economic value than they destroy, gross of fees, which is largely driven by large funds.Practical implicationsMarket-tracking passive indexes are the most reliable choice for investors who want to maximise their risk-adjusted returns at the lowest possible cost. However, investors with a high level of risk appetite might prefer small actively managed funds in CEE when market conditions are stable or growing. Investors who are less risk tolerant might prefer large actively managed funds.Originality/valueThis is the first study to shed light on the presence of skill in mutual fund returns in CEE.

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Section: Baseline Bootstrap Resultscontrasting

confidence: 99%

Luck and skill in the performance of global equity funds in Central and Eastern Europe

Tapver

2022

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“…They find considerable heterogeneity in the performance but modest evidence of persistence in multiple factor models. Cremers et al (2022b) introduced a holding-based procedure to create a best-fit benchmark for a mutual fund. When a mutual fund's best fit benchmark is different from its prospectus benchmark, authors find that those funds tend to be riskier and outperform their prospectus benchmark but underperform the best fit benchmark.…”

Section: Literature Reviewmentioning

confidence: 99%

Which Should Be Your Top Pick, Separately Managed Accounts or ETFs?

Zhang,

Guo,

Cheng

et al. 2024

JRFM

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This paper examined a large sample of equity SMAs (separately managed accounts, hereafter) from 1999 to 2023. This paper found that separate accounts have much higher expenses than ETFs and may outperform or underperform ETFs in terms of gross return and net return depending on their investment styles. However, this paper found that separate accounts consistently outperform ETFs in terms of risk-adjusted gross and net return alphas across different investment styles using the Fama and French Three Factor Model. Additionally, this paper found no significant evidence that tax is proactively managed within separate accounts. Lastly, this paper found that on average SMAs’ risk-adjusted alphas do not persist over time.

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“…The paper most closely related to ours is Sensoy (2009), who asks whether a time‐invariant passive mainstream stock index exists that captures the fund characteristics better than the de jure benchmarks (official, or self‐designated benchmarks). In parallel, Cremers and Petajisto (2009), Cremers and Pareek (2016), and Cremers et al (2022) introduce time variations into the holding‐based fund benchmark literature.…”

Section: Introductionmentioning

confidence: 99%

De facto time‐varying indices‐based benchmarks for mutual fund returns

Cheng

Yan

2023

J of Financial Research

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We question time‐invariant indices as fund benchmarks and propose a regime‐switching methodology to identify time‐varying de facto benchmarks from a pool of market‐based indices, with or without a risk‐free asset. To ameliorate the benchmark mismatch issue, we highlight the importance of using time‐varying indices‐based benchmarks for fund performance evaluation. Our de facto benchmark captures fund styles better than other benchmark choices, substantially improves the identification of significant fund alphas, and provides better out‐of‐sample forecasts. We uncover several new findings in terms of fund performance evaluation using our de facto benchmarks.

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Benchmark Discrepancies and Mutual Fund Performance Evaluation

Cited by 33 publications

References 48 publications

Luck and skill in the performance of global equity funds in Central and Eastern Europe

Luck and skill in the performance of global equity funds in Central and Eastern Europe

Which Should Be Your Top Pick, Separately Managed Accounts or ETFs?

De facto time‐varying indices‐based benchmarks for mutual fund returns

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