Information Content When Mutual Funds Deviate from Benchmarks

Information Content When Mutual Funds Deviate from Benchmarks

The consensus wisdom of active mutual fund managers, as reflected in their average overand underweighting decisions, contains valuable information about future stock returns. Analyzing a comprehensive sample of active U.S. equity funds 1984—2008, we find that stocks heavily overweighted by active funds outperform their underweighted counterparts by more than 7% per year, after adjustments for t...

Information acquisition and mutual funds

We generalize the standard competitive rational expectations equilibrium (Hellwig (1980), Verrecchia (1982)) by studying the possibility that informed agents open mutual funds in order to sell their private information. We illustrate how mutual funds endogenously arise in equilibrium and we characterize the fund managers’ optimal investment management fees under imperfect competition. In our mo...

Mutual funds performance evaluation based on endogenous benchmarks

This paper proposes two quadratic-constrained DEA models for evaluation of mutual funds performance, from a perspective of evaluation based on endogenous benchmarks. In comparison to previous studies, this paper decomposes two vital factors for mutual funds performance, i.e. risk and return, in order to define mutual funds’ endogenous benchmarks and give insights and suggestions for managements...

When is Stock Picking by Mutual Funds Successful?

Mutual Funds in Equilibrium∗

Historically, the literature on money management has not consistently applied the rational expectations equilibrium concept. We explain why and summarize recent developments in the money management literature that do apply this concept correctly. We demonstrate that in many respects the rational expectations equilibrium better approximates the observed equilibrium in the money management space ...