Self-Declared benchmarks and fund manager intent: “Cheating” or competing?

Huaizhi Chen, Richard Evans and Yang Sun

Journal of Financial Economics, 2025, vol. 165, issue C

Abstract: Using a panel of self-declared benchmarks, we examine funds’ use of mismatched benchmarks over time. Mismatching is high at the beginning of our sample (45 % of TNA in 2008), consistent with prior studies, but declines significantly over time (27 % in 2020), driven by existing specialized funds changing benchmarks to match their style. Market forces including investor learning, institutional governance, market competition, and product positioning all play a role in benchmark correction decisions. For funds with difficult to categorize investment strategies, mismatched benchmarks are less associated with performance bias. Our study highlights the value of market solutions in aligning manager-investor interests.

Keywords: Mutual fund benchmarks; Relative performance evaluation; Fund peer groups: Investor learning; Monitoring; Product market competition (search for similar items in EconPapers)
JEL-codes: G11 G23 G34 J33 L11 L15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:165:y:2025:i:c:s0304405x24001983

DOI: 10.1016/j.jfineco.2024.103975

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