Hostname: page-component-7c8c6479df-r7xzm Total loading time: 0 Render date: 2024-03-28T12:11:39.676Z Has data issue: false hasContentIssue false

A Study of Monthly Mutual Fund Returns and Performance Evaluation Techniques

Published online by Cambridge University Press:  06 April 2009

Abstract

This paper empirically contrasts the Jensen Measure, the Positive Period Weighting Measure, developed in Grinblatt and Titman (1989b), and a measure developed from the Treynor-Mazuy (1966) quadratic regression on a sample of 279 mutual funds and 109 passive portfolios, using a variety of benchmark portfolios. The study finds that the measures generally yield similar inferences when using the same benchmark and that inferences can vary, even from the same measure, when using different benchmarks. This paper also analyzes the determinants of mutual fund performance. Tests of fund performance that employ fund characteristics, such as net asset value, load, expenses, portfolio turnover, and management fee are reported. These tests surprisingly suggest that turnover is significantly positively related to the ability of fund managers to earn abnormal returns.

Type
Research Article
Copyright
Copyright © School of Business Administration, University of Washington 1994

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Admati, A.; Bhattacharya, S.; Pfleiderer, P.; and Ross, S. A.. “On Timing and Selectivity.” Journal of Finance, 46 (07 1986), 715730.CrossRefGoogle Scholar
Admati, A., and Ross, S. A.. “Measuring Investment Performance in a Rational Expectations Equilibrium Model.” Journal of Business, 58 (01 1985), 126.CrossRefGoogle Scholar
Banz, R.The Relationship between Return and Market Value of Common Stocks.” Journal of Financial Economics, 9 (03 1981), 318.CrossRefGoogle Scholar
Black, F.; Jensen, M.; and Scholes, M.. “The Capital Asset Pricing Model: Some Empirical Tests.” In Studies in the Theory of Capital Markets, Jensen, M., ed. New York, NY: Praeger (1972).Google Scholar
Brown, S. J.; Goetzmann, W.; Ibbotson, R. G.; and Ross, S. A.. “Survivorship Bias in Performance Studies.” Review of Financial Studies, 5 (4, 1992), 553580.CrossRefGoogle Scholar
Dybvig, P., and Ross, S. A.. “Differential Information and Performance Measurement Using A Security Market Line.” Journal of Finance, 40 (06 1985), 383399.CrossRefGoogle Scholar
Elton, E. J.; Gruber, M. J.; Das, S.; and Hlavka, M.. “Efficiency with Costly Information: A Reinterpretation of Evidence from Managed Portfolios.” Review of Financial Studies, 6 (1, 1993), 122.CrossRefGoogle Scholar
Fama, E., and MacBeth, J.. “Risk, Return and Equilibrium: Empirical Tests.” Journal of Political Economy, 72 (0506 1973), 607636.CrossRefGoogle Scholar
Gibbons, M.; Ross, S. A.; and Shanken, J.. “A Test of the Efficiency of a Given Portfolio.” Econometrica, 57 (09 1989), 11211152.CrossRefGoogle Scholar
Grinblatt, M., and Titman, S.. “Mutual Fund Performance: An Analysis of Monthly Returns.” Working Paper, Univ. of California, Los Angeles (03 1988).Google Scholar
Grinblatt, M., and Titman, S.. “The Evaluation of Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings.” Journal of Business, 62 (07 1989a), 394415.Google Scholar
Grinblatt, M., and Titman, S.. “Portfolio Performance Evaluation: Old Issues and New Insights.” Review of Financial Studies, 2 (No. 3, 1989b), 396422.CrossRefGoogle Scholar
Grinblatt, M., and Titman, S.. “The Persistence of Mutual Fund Performance.” Journal of Finance, 47 (12 1992), 1977–1984.CrossRefGoogle Scholar
Grinblatt, M., and Titman, S.. “Performance Measurement without Benchmarks: An Examination of Mutual Fund Returns.” Journal of Business, 66 (01 1993), 4768.CrossRefGoogle Scholar
Jensen, M.The Performance of Mutual Funds in the Period 1945–1964.” Journal of Finance, 23 (05 1968), 389416.Google Scholar
Grinblatt, M., and Titman, S.. “Risk, the Pricing of Capital Assets, and the Evaluation of Investment Portfolios.” Journal of Business, 42 (04 1969), 167247.Google Scholar
Grinblatt, M., and Titman, S.. “Optimal Utilization of Market Forecasts and the Evaluation of Investment Portfolio Performance.” In Mathematical Methods in Investment and Finance, Szego, and Shell, , eds. Amsterdam: North Holland (1972).Google Scholar
Lehmann, B., and Modest, D.. “Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons.” Journal of Finance, 42 (06 1987), 233265.CrossRefGoogle Scholar
Lehmann, B., and Modest, D.. “The Empirical Foundations of the Arbitrage Pricing Theory.” Journal of Financial Economics, 21 (09 1988), 213254.CrossRefGoogle Scholar
Litzenberger, R., and Ramaswamy, K.. “The Effects of Personal Taxes and Dividends on Capital Asset Prices: Theory and Empirical Evidence.” Journal of Financial Economics, 7 (06 1979), 163195.CrossRefGoogle Scholar
Litzenberger, R., and Ramaswamy, K.. “The Effects of Dividends on Common Stock Returns: Tax Effects or Information Effects?Journal of Finance, 37 (05 1982), 429443.CrossRefGoogle Scholar
Reinganum, M.Misspecification of Capital Asset Pricing: Empirical Anomalies Based on Earnings' Yields and Market Values.” Journal of Financial Economics, 9 (03 1981), 1946.CrossRefGoogle Scholar
Roll, R.Ambiguity when Performance is Measured by the Securities Market Line.” Journal of Finance, 33 (09 1978), 10511069.CrossRefGoogle Scholar
Sefcik, S., and Thompson, R.. “An Approach to Statistical Inference in Cross-Sectional Models with Security Abnormal Returns as the Dependent Variable.” Journal of Accounting Research, 24 (Autumn 1986), 316334.CrossRefGoogle Scholar
Treynor, J.How to Rate Management of Investment Funds.” Harvard Business Review, 44 (03 1965), 131136.Google Scholar
Treynor, J., and Mazuy, F.. “Can Mutual Funds Outguess the Market?Harvard Business Review, 45 (0708 1966), 131136.Google Scholar
Wiesenberger, A.Investment Companies Service. New York, NY: A. Wiesenberger and Co. (1975).Google Scholar