Benchmark Discrepancies and Mutual Fund Performance Evaluation. (5th March 2022)

• Record Type: Journal Article
• Authors: Cremers, K. J. Martijn; Fulkerson, Jon A.; Riley, Timothy B.
• Is Part Of: Journal of financial and quantitative analysis. Volume 57:Number 2(2022)
• Page Start: 543
• Page End: 571
• Publication Date: 2022-03-05
• Subjects: Finance -- Periodicals; Investments -- Mathematics -- Periodicals; 332.05
• DOI: 10.1017/S0022109021000119
• Languages: English
• ISSNs: 0022-1090

Abstract

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.