Double-Adjusted Mutual Fund Performance

Mutual fund’s R2 as predictor of performance

Jeffrey A Busse, Lei Jiang and Yuehua Tang

The Review of Asset Pricing Studies, 2021, vol. 11, issue 1, 169-208

Abstract: Mutual fund returns are significantly related to stock characteristics in the cross-section after controlling for risk via factor models. We develop a new double-adjusted approach that controls for both factor model betas and stock characteristics in one performance measure. The new measure substantially affects performance rankings, with a quarter of funds experiencing a change in their percentile ranking greater than 10. Double-adjusted performance produces strong evidence of persistence in relative performance. Inference based on the new measure often differs, sometimes dramatically, from that based on traditional performance estimates.Received November 22, 2019; editorial decision June 28, 2020; Editor: Jeffrey Pontiff. Authors have furnished an Internet Appendix,which is available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: G11 G23 J24 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:rasset:v:11:y:2021:i:1:p:169-208.

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