The effect of portfolio weighting on investment performance evaluation: The case of actively managed mutual funds

Stanley Block () and Dan French ()

Journal of Economics and Finance, 2002, vol. 26, issue 1, 16-30

Abstract: Among the factors influencing investment performance measurement is the weight dedicated to each security. This paper develops metrics for measuring the extent of equal weighting and value weighting of a portfolio. A sample of 506 actively managed mutual funds shows that funds tend to be equally weighted to a greater degree than they are value weighted, implying that investment performance based solely on a single value-weighted benchmark may not adequately identify excess performance. We propose a two-factor model utilizing both a value-weighted and an equally weighted index and show that the model provides a better fit than the single-index model.(JEL G1) Copyright Springer 2002

Date: 2002
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DOI: 10.1007/BF02744449

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