Holdings-Based Fund Performance Measures: Estimation and Inference

105 Pages Posted: 16 Jun 2018 Last revised: 19 Dec 2018

See all articles by Wayne E. Ferson

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

Junbo L. Wang

Louisiana State University, Baton Rouge

Date Written: December 18, 2018

Abstract

This paper introduces a panel regression framework for holdings-based investment performance measures. Fixed effects decompose performance into time series and cross-sectional predictive ability. Time-series predictive ability is the traditional focus, but cross-sectional ability strongly influences classical measures. A large component of the cross-sectional ability is “buy-and-hold drift,” where buy-and-hold weights drift towards higher alpha stocks. Controlling for this, we find that the time-series predictive ability of the typical equity mutual fund is insignificant or even negative before costs, and the cross-sectional predictive ability is typically no better than a buy-and-hold strategy.

Suggested Citation

Ferson, Wayne E. and Wang, Junbo L., Holdings-Based Fund Performance Measures: Estimation and Inference (December 18, 2018). Available at SSRN: https://ssrn.com/abstract=3188321 or http://dx.doi.org/10.2139/ssrn.3188321

Wayne E. Ferson

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://www-rcf.usc.edu/~ferson/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Junbo L. Wang (Contact Author)

Louisiana State University, Baton Rouge ( email )

Baton Rouge, LA 70803
United States

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