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http://hdl.handle.net/10419/41364
  
Title:Endogenous benchmarks PDF Logo
Authors:Hunter, David
Kandel, Eugene
Kandel, Shmuel
Wermers, Russ
Issue Date:2009
Series/Report no.:CFR working paper 10-02
Abstract:This paper develops a new approach that controls for commonalities in actively managed investment fund returns when measuring their performance. It is well-known that many investment funds may systematically load on common priced factors omitted from popular models, exhibit similarities in their choices of specific stocks and industries, or vary their risk-loadings in a similar way over time. We propose a parsimonious model that uses the return on the group of mutual funds as a benchmark for each individual fund within that group. We demonstrate that this model substantially reduces the correlation between fund residuals from standard models used for equity and fixed-income funds, and improves the estimates of fund α's and β's from commonly used equity and fixed-income models.
Document Type:Working Paper
Appears in Collections:CFR Working Papers, Centre for Financial Research (CFR), Universität Köln

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