City Research Online

UK equity mutual fund alphas make a comeback

Mateus, I. B., Mateus, C. & Todorovic, N. (2016). UK equity mutual fund alphas make a comeback. International Review of Financial Analysis, 44, pp. 98-110. doi: 10.1016/j.irfa.2016.01.004


In this study, we re-visit the performance of 887 active UK equity mutual funds using a new approach proposed by Angelidis, Giamouridis, and Tessaromatis. The authors argue that mutual funds stock selection is driven by the benchmark index, so if the benchmark generates alpha, there will be a bias in interpretation of manager's stock-picking ability. In their model, the alpha of a fund is adjusted by the benchmark's alpha. By applying this method, we eliminate bias inflicted by the persistently negative alphas of FTSE 100 Index in the period 1992-2013. We find that adjusted Fama-French and Carhat alphas of UK equity mutual funds are higher than those implied by the standard three- and four-factor models and are overall positive, contrary to most of the existing literature on UK fund performance. This result is consistent across funds' investment styles and robust to the use of FTSE Small Cap as benchmark for a sub-sample of small cap funds.

Publication Type: Article
Additional Information: © 2016, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International
Publisher Keywords: Fama-French, Carhart, adjusted alphas, UK equity funds performance
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
[thumbnail of UK alpha comeback_anon_V2_27Oct15.pdf]
Text - Accepted Version
Available under License : See the attached licence file.

Download (906kB) | Preview
[thumbnail of Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence]
Text (Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence) - Other
Download (201kB) | Preview


Add to AnyAdd to TwitterAdd to FacebookAdd to LinkedinAdd to PinterestAdd to Email


Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login