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Journal of Financial and Quantitative Analysis Vol. 57 No. 2 2022

Benchmark Discrepancies and Mutual Fund Performance Evaluation

K. J. Martijn Cremers; Jon A. Fulkerson1; Timothy B. Riley2

1 University of Dayton · 2 University of Arkansas at Fayetteville

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.

DOI
10.1017/s0022109021000119
Volume
57
Issue
2
Pages
543-571
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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