An Intertemporal CAPM Approach to Evaluate Mutual Fund Performance
Resource
Review of Quantitative Finance and Accounting 20 (4): 415-433
Journal
Review of Quantitative Finance and Accounting
Journal Volume
20
Journal Issue
4
Pages
415-433
Date Issued
2004
Date
2004
Author(s)
Abstract
Merton (1973) and Campbell (1993) have demonstrated that if an investor anticipates information shifts, he will adjust his portfolio choice today in an attempt to hedge these shifts. Exploiting these insights, we construct a new performance measure to evaluate fund managers' hedging ability. This new measure is different from two widely adopted performance evaluation measures: securities selectivity and market timing. Moreover, an econometric methodology is developed to simultaneously estimate the magnitudes of these three portfolio performance evaluation measures. The results show that mutual fund managers are on average with positive security selection and negative market timing ability. Furthermore, the mutual funds with investment style classified as "Asset Allocation" generally have positive hedging timing ability. © 2003 Kluwer Academic Publishers.
Type
journal article