Class 9 Market Efficiency and Mutual Fund Performance
- Slides: 29
Class 9 Market Efficiency and Mutual Fund Performance Evaluation
Three Forms of Market Efficiency n n n Weak Form Efficiency: Can past price series be used to predict future excess returns? Semi-Strong Form Efficiency: Can publicly available information be used to predict future excess returns? Strong Form Efficiency: Can inside information be used to predict future excess returns?
High-Low-Close Chart
Head and Shoulders Pattern Stock Price Time
Bollinger Bands IBM Bollinger Bands 110 105 100 Price ($) 95 90 85 80 75 70 12/31 02/19 04/09 05/29 07/18 09/06
Mutual Fund Styles n n n Aggressive Growth-Income-Growth Balanced Income
Style and Beta Risk
Style and Volatility
Style and Average Returns
Jensen’s Alpha n n From the CAPM: E[rit]-rf = bi(E[rmt]-rf). Any expectation can be written as a realized value plus a shock: (rit+hit)-rf = bi({E[rmt]+hmt}-rf). Rearranging terms yields: rit -rf = bi(rmt-rf)+eit. Check intercept of the regression model: rit -rf = ai+bi(rmt-rf)+eit.
Historical Performance of Mutual Funds
Distribution of Alphas
Distribution of t-Statistics
Portfolio Manager Ability n n Stock-picking ability: Can the manager identify which stocks will outperform the market or the industry? Market-timing ability: Can the manager identify turning points between bull and bear markets?
Stock-Picking Ability
Market-Timing Ability
Perfect Market-Timing Ability
Sharpe Ratios n n The Sharpe Ratio is the ratio of excess returns to volatility: Compare the Sharpe Ratio for a particular fund to that of the market (or appropriate benchmark):
Ex-Post Sharpe Ratios
The Treynor Measure n n The Treynor Measure is the ratio of excess returns to systematic risk: Compare the Yreynor Measure for a particular fund to that of the market (or appropriate benchmark):
Graham-Harvey Measures n n n Create a portfolio of S&P 500 futures contracts and a money market account that matches the volatility of the particular mutual fund. Lever the mutual fund volatility to match the S&P 500 futures volatility by borrowing or lending. In each case, compare the returns of the two portfolios.
Graham-Harvey Measure
Performance Persistence
Investment Newsletter Performance n n n Graham and Harvey (1995) study the performance of recommendations of 200 investment newsletters. Given the evidence on market efficiency, what should we expect? Even if the newsletter writers have inside information - should we expect to make money by following their recommendations?
Performance of All Newsletters
Performance of Long-Lived Newsletters
Ability to Time Bull Markets Monthly S&P 500 Return Performance of Newsletter Strategies Graham and Harvey (1995) 20% 10% Fitted Regression Line 0% -10% -20% -30% 0% 10% 20% 30% 40% 50% 60% 70% Percent of letters which increased weights in each mo
Ability to Time Bear Markets
- Mutual fund flows and performance in rational markets
- Allocative efficiency and productive efficiency
- Us mutual fund industry size
- Mutual fund disclaimer
- Mutual fund operations
- Wealth eoffice advisor login
- Uit vs mutual fund vs etf
- Catholic mutual fund
- Old mutual absolute smooth growth portfolio fund fact sheet
- Mutual fund primer
- Mutual fund returns may be granted pass-through status if
- Cafe mutual fund
- Investing plug
- Allocative efficiency vs productive efficiency
- Productive inefficiency and allocative inefficiency
- Imprest fund system adalah
- Targeting segmentation positioning
- Energy efficiency revolving fund
- Singhals heuristic algorithm
- Market leader follower challenger nicher
- Mutual funds market watch
- Sovereign wealth fund investment patterns and performance
- Three forms of market efficiency
- Efficient market hypothesis
- What is capital market efficiency
- Logab logba
- Efficiency class of algorithm
- Performance challenge fund logo
- Market for loanable funds graph
- Structure-conduct-performance