Alternative Model to Evaluate Selectivity and Timing Performance of Mutual Fund Managers: Theory and Evidence
This chapter empirically examines the selectivity, market timing, and overall performance of equity funds in the United States from January 1990 to September 2005. We first used the Sharpe, Treynor, and Jensen measures to evaluate the selectivity performance of mutual fund managers. In addition, we also used the Treynor-Mazuy, Henriksson-Merton, and Lee-Rahman models to evaluate the selectivity and timing performance of mutual fund managers. Based on these measures and models, we found that about one-third of funds had significant positive selectivity ability. In addition, we also found that some funds have timing ability for the mutual fund managers. Nevertheless, without considering the transaction costs and taxes, the actual investment for most mutual funds compared to a passive investment strategy still appears to take the lead.
KeywordsMutual Fund Systematic Risk Excess Return Fund Manager Capital Asset Price Model
Unable to display preview. Download preview PDF.
- Bhattacharya, S., and P. Pfleiderer, “A Note on Performance Evaluation.” Technical Report 714, Stanford, CA: Stanford University, Graduate School of Business (1983).Google Scholar
- Jensen, M. C., “Optimal Utilization of Market Forecasts and the Evaluation of Investment Performance.” In G. P. Szego and K. Shell(eds.), Mathematical Methods in Investment and Finance. Amsterdam: Elsevier (1972).Google Scholar
- Lee C. F., and S. Rahman, “Market Timing, Selectivity, and Mutual Fund Performance: An Empirical Investigation.” Journal of Business 63, 261–278 (1990).Google Scholar
- Treynor, J. L., “How to Rate Management of Investment Funds.” Harvard Business Review 13, 63–75 (1965).Google Scholar
- Treynor, J. L., and K. K. Mazuy, “Can Mutual Funds Outguess the Market?” Harvard Business Review 44, 131–136 (1966).Google Scholar