Why mutual funds "underperform"

Vincent Glode

Journal of Financial Economics, 2011, vol. 99, issue 3, 546-559

Abstract: I propose a parsimonious model that reproduces the negative risk-adjusted performance of actively managed equity mutual funds. In the model, a fund manager can generate state-dependent active returns at a disutility. Negative expected performance and mutual fund investing simultaneously arise in equilibrium because the active return the fund manager generates covaries positively with a component of the pricing kernel that the performance measure omits, consistent with recent empirical evidence. Using data on U.S. funds, I also document new empirical evidence consistent with the model's cross-sectional implications.

Keywords: Mutual; fund; Performance; Business; cycle; Investment; Pricing; kernel (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (89)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:99:y:2011:i:3:p:546-559

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