The Beta Anomaly and Mutual Fund Performance

Paul Irvine (), Jeong Ho (John) Kim () and Jue Ren ()
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Paul Irvine: Neeley School of Business, Texas Christian University, Fort Worth, Texas 76129
Jeong Ho (John) Kim: Department of Economics, Emory University, Atlanta, Georgia 30322
Jue Ren: Neeley School of Business, Texas Christian University, Fort Worth, Texas 76129

Management Science, 2024, vol. 70, issue 1, 143-163

Abstract: We find evidence for the beta anomaly in mutual fund performance. This anomaly is not accounted for in the standard four-factor framework, nor by the addition of a betting-against-beta factor to the benchmark model. We identify the active component of alpha (active alpha) not attributable to the passive effects related to beta. Active alpha is persistent and associated with superior portfolio performance. We find that, although many investors use standard alpha to allocate capital, a subset of sophisticated investors allocate their money based on active alpha. Our procedure is useful across the commonly used benchmark models for measuring performance and can be extended to accommodate other potential factor beta anomalies.

Keywords: performance evaluation; beta anomaly; mutual fund; active alpha (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:1:p:143-163

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