Journal of Finance Vol. 56 No. 1 2001
Should Investors Avoid All Actively Managed Mutual Funds? A Study in Bayesian Performance Evaluation
Abstract
This paper analyzes mutual‐fund performance from an investor's perspective. We study the portfolio‐choice problem for a mean‐variance investor choosing among a risk‐free asset, index funds, and actively managed mutual funds. To solve this problem, we employ a Bayesian method of performance evaluation; a key innovation in our approach is the development of a flexible set of prior beliefs about managerial skill. We then apply our methodology to a sample of 1,437 mutual funds. We find that some extremely skeptical prior beliefs nevertheless lead to economically significant allocations to active managers.
- DOI
- 10.1111/0022-1082.00319
- Volume
- 56
- Issue
- 1
- Pages
- 45-85
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex