Benchmark Discrepancies and Mutual Fund Performance Evaluation

K. J. Martijn Cremers, Jon A. Fulkerson and Timothy B. Riley

Journal of Financial and Quantitative Analysis, 2022, vol. 57, issue 2, 543-571

Abstract: We introduce a new holdings-based procedure to identify whether a mutual fund has a benchmark discrepancy, which we define as a benchmark other than the prospectus benchmark best matching a fund’s investment strategy. We find that funds with a benchmark discrepancy tend to be riskier than their prospectus benchmarks indicate. As a result, the funds on average outperform their prospectus benchmarks, before further risk adjustments, despite underperforming the benchmarks that best match their portfolios.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:57:y:2022:i:2:p:543-571_5

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