Return Horizon and Mutual Fund Performance

69 Pages Posted: 24 Mar 2020 Last revised: 15 Jun 2021

See all articles by Hendrik Bessembinder

Hendrik Bessembinder

Arizona State University; W.P. Carey School of Business

Michael J. Cooper

University of Utah - David Eccles School of Business

Feng Zhang

University of Utah - Department of Finance

Date Written: June 14, 2021

Abstract

Measures of investment performance depend on the horizon over which returns are assessed. While 47% of U.S. equity mutual fund returns exceed matched-month SPY ETF returns, only 29% of the funds outperform the SPY in terms of compound returns over the full 1991-2018 sample period. More important, alpha, the canonical measure of mean return after allowing for systematic (beta) risk, depends on return horizon, because beta depends on horizon. Compared to a benchmark of 41% estimated in monthly returns, the percentage of mutual funds with positive alpha estimates against the SPY decreases to 21% (increases to 46%) at the decade return horizon for funds with high (low) estimated monthly market betas. Alphas estimated from short-horizon (e.g. monthly) returns may be uninformative or even misleading regarding fund performance for investors with longer horizons.

JEL Classification: G10; G23

Suggested Citation

Bessembinder, Hendrik (Hank) and Cooper, Michael J. and Zhang, Feng, Return Horizon and Mutual Fund Performance (June 14, 2021). Available at SSRN: https://ssrn.com/abstract=3550284 or http://dx.doi.org/10.2139/ssrn.3550284

Hendrik (Hank) Bessembinder (Contact Author)

Arizona State University ( email )

PO Box 873906
Tempe, AZ 85207
United States

W.P. Carey School of Business ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

HOME PAGE: http://https://wpcarey.asu.edu/people/profile/2717225

Michael J. Cooper

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Feng Zhang

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112-9303
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
281
Abstract Views
1,516
rank
132,375
PlumX Metrics