Stochastic Dominance and the Performance of U.K. Unit Trusts

Anthony Saunders, Charles Ward and Richard Woodward

Journal of Financial and Quantitative Analysis, 1980, vol. 15, issue 2, 323-330

Abstract: There have been a large number of tests assessing the performance of U.S. mutual funds. Most of the performance measures have been either explicitly or implicitly based on only two moments of the distribution of returns: the mean and variance. For example, the performance measure suggested and employed by Sharpe [10] is the fund's ex-post reward (return) to variability ratio, while the capital asset pricing measures employed by Treynor [11], Jensen [4] and others relate the fund's returns to those expected, given its level of systematic risk [β]. The risk [β] and excess return [α] measures themselves are directly derived from an underlying mean-variance model of asset choice. When these performance measures are used to compare fund performance vis a vis the market (index), no consensus of opinion appears to have materialized, although most studies find that funds in general perform worse than the market. Indeed, as Carlson ([2, p. 22]) notes in the conclusion of an article reviewing a number of U.S. mutual fund studies, “The issue of whether mutual funds outperform ‘the market’ depends in large degree on the selection of both the time period and market proxy.”

Date: 1980
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