Conditional Performance Evaluation for German Mutual Equity Funds

Wolfgang Bessler, Wolfgang Drobetz and Heinz Zimmermann ()
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Heinz Zimmermann: University of Basel

Working papers from Faculty of Business and Economics - University of Basel

Abstract: We investigate the performance of a sample of German mutual equity funds over NEWLINE the period from 1994 to 2003. Our general finding is that mutual funds, on average, NEWLINE hardly produce excess returns relative to their benchmark that are large enough to NEWLINE cover their expenses. This conclusion is drawn from a variety of model specifications NEWLINE and is robust to many different benchmarks. Compared to unconditional NEWLINE measures, fund performance substantially deteriorates when we measure conditional NEWLINE alphas both in single-index and multi-factor models. We also measure fund NEWLINE performance in the Euler-equation framework and test several specifications of the NEWLINE stochastic discount factor using GMM. The result that funds underperform even before NEWLINE costs is even more pronounced. Overall, given the fact that stock returns are to NEWLINE some extent predictable by using publicly available information, conditional analysis NEWLINE raises the hurdle for active managers seeking abnormal positive performance, NEWLINE because it gives them no credit for exploiting readily available information.

Keywords: Mutual funds; stock return predictability; conditional performance measurement; stochastic discount factor. (search for similar items in EconPapers)
Date: 2007-01-15
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bsl:wpaper:2007/22

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