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Improved inference in the evaluation of mutual fund performance using panel bootstrap methods

Blake, D., Caulfield, T., Ioannidis, C. and Tonks, I. (2014). Improved inference in the evaluation of mutual fund performance using panel bootstrap methods. Journal of Econometrics, 183(2), pp. 202-210. doi: 10.1016/j.jeconom.2014.05.010

Abstract

Two new methodologies are introduced to improve inference in the evaluation of mutual fund performance against benchmarks. First, the benchmark models are estimated using panel methods with both fund and time effects. Second, the non-normality of individual mutual fund returns is accounted for by using panel bootstrap methods. We also augment the standard benchmark factors with fund-specific characteristics, such as fund size. Using a dataset of UK equity mutual fund returns, we find that fund sizehas a negative effect on the average fund manager's benchmark-adjusted performance. Further, when we allow for time effects and the non-normality of fund returns, we find that there is no evidence that eventhe best performing fund managers can significantly out-perform the augmented benchmarks after fundmanagement charges are taken into account.

Publication Type: Article
Additional Information: NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Econometrics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Econometrics, Volume 183, Issue 2, December 2014, Pages 202–210, http://dx.doi.org/10.1016/j.jeconom.2014.05.010
Publisher Keywords: Bootstrap methods, Factor benchmark models, Mutual funds, Open-ended investment companies, Panel methods, Performance measurement, Unit trusts
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/6843
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