"Return Horizon and Mutual Fund Performance"
|Date||16 September 2021|
Measures of investment performance depend on the horizon over which returns are assessed. While 47% of U.S. equity mutual fund returns exceed matched-month SPY ETF returns, only 29% of the funds outperform the SPY in terms of compound returns over the full 1991-2018 sample period. More important, alpha, the canonical measure of mean return after allowing for systematic (beta) risk, depends on return horizon, because beta depends on horizon. Compared to a benchmark of 41% estimated in monthly returns, the percentage of mutual funds with positive alpha estimates against the SPY decreases to 21% (increases to 46%) at the decade return horizon for funds with high (low) estimated monthly market betas. Alphas estimated from short-horizon (e.g. monthly) returns may be uninformative or even misleading regarding fund performance for investors with longer horizons.*
*Co-authored with M.J. Cooper (University of Utah) and F. Zhang (University of Utah)
This seminar will be organised via Zoom. If you are interested in joining this seminar, please send an email to the secretariat of the Finance Group.