Should Investors Avoid All Actively Managed Mutual Funds? A Study in Bayesian Performance Evaluation
Related Collections
Degree type
Discipline
Subject
Finance and Financial Management
Funder
Grant number
License
Copyright date
Distributor
Related resources
Contributor
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.
Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
Journal title
Volume number
Issue number
Publisher
Publisher DOI
Comments
At the time of publication, author Jessica A Wachter was affiliated with New York University. Currently, she is a faculty member at the Wharton School at the University of Pennsylvania.