Searching for mutual fund winners? the strategy is to outbid both, the benchmark and the peer group

Cesario Mateus*, Irina Mateus, Natasa Todorovic

*Kontaktforfatter

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

2 Citationer (Scopus)

Abstract

Standard Fama-French-Carhart models define ‘winners’ as funds that generate the highest excess returns given the factor risks involved; however, they do not provide information on whether such winners are outperforming their prospectus benchmark or their peer group. In addition, existing literature relying on these models, by and large, does not find evidence of persistence in performance. In this paper, we propose a two-stage procedure that allows investors to select ‘true’ winners(losers) which generate the highest factor-risk-adjusted performance relative to the benchmark and the peer group simultaneously. Utilizing both adjustments at the same time results in a strong predictive ability, leading to a selection of funds that persist in performance. Our true winner funds have statistically significant superior benchmark-adjusted alphas, peer group adjusted alphas and Sharpe ratios one year ahead, which are significantly different from those generated by the true loser funds. The results are robust to extended investment horizon, and alpha estimation method, and they are not driven by outliers, size of fund-sorts, or any particular period within our sample.

OriginalsprogEngelsk
TidsskriftApplied Economics
Vol/bind56
Udgave nummer11
Sider (fra-til)1268-1282
Antal sider15
ISSN0003-6846
DOI
StatusUdgivet - 2024

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© 2023 Informa UK Limited, trading as Taylor & Francis Group.

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