Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons

Bruce N Lehmann and David M Modest

Journal of Finance, 1987, vol. 42, issue 2, 233-65

Abstract: The main goal in this paper is to gauge the sensitivity of conventional measures of abnormal mutual-fund performance to the benchmark chosen to measure normal performance. The authors employed standard CAPM benchmarks and a variety of APT benchmarks to investigate this question and found little similarity between the absolute and relative rankings implied by them. Hence, both the model for risk and return and the method used to construct the APT benchmark are important choices in this context. Finally, the authors found statistically significant measured abnormal performance using all benchmarks. The economic interpretation of this phenomenon appears to be an open question. Copyright 1987 by American Finance Association.

Date: 1987
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