An intertemporal CAPM approach to evaluate mutual fund performance

Jow Ran Chang; Mao Wei Hung; Cheng Few Lee

doi:https://doi.org/10.1023/A:1024076518110

An intertemporal CAPM approach to evaluate mutual fund performance

Jow Ran Chang, Mao Wei Hung, Cheng Few Lee

Rutgers Business School, Finance & Economics

Rutgers, The State University

Research output: Contribution to journal › Article › peer-review

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.

Original language	American English
Pages (from-to)	415-433
Number of pages	19
Journal	Review of Quantitative Finance and Accounting
Volume	20
Issue number	4
DOIs	https://doi.org/10.1023/A:1024076518110
State	Published - Jun 2003

ASJC Scopus subject areas

Accounting
Business, Management and Accounting(all)
Finance

Keywords

Intertemporal CAPM
Mutual fund
Performance evaluation

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Cite this

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title = "An intertemporal CAPM approach to evaluate mutual fund performance",

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.",

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AU - Chang, Jow Ran

AU - Hung, Mao Wei

AU - Lee, Cheng Few

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AB - 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.

KW - Intertemporal CAPM

KW - Mutual fund

KW - Performance evaluation

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JO - Review of Quantitative Finance and Accounting

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An intertemporal CAPM approach to evaluate mutual fund performance

Abstract

ASJC Scopus subject areas

Keywords

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