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Self-Declared benchmarks and fund manager intent: “Cheating” or competing?

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  • Chen, Huaizhi
  • Evans, Richard
  • Sun, Yang

Abstract

Using a panel of self-declared benchmarks, we examine funds’ use of mismatched benchmarks over time. Mismatching is high at the beginning of our sample (45 % of TNA in 2008), consistent with prior studies, but declines significantly over time (27 % in 2020), driven by existing specialized funds changing benchmarks to match their style. Market forces including investor learning, institutional governance, market competition, and product positioning all play a role in benchmark correction decisions. For funds with difficult to categorize investment strategies, mismatched benchmarks are less associated with performance bias. Our study highlights the value of market solutions in aligning manager-investor interests.

Suggested Citation

  • Chen, Huaizhi & Evans, Richard & Sun, Yang, 2025. "Self-Declared benchmarks and fund manager intent: “Cheating” or competing?," Journal of Financial Economics, Elsevier, vol. 165(C).
    • Handle: RePEc:eee:jfinec:v:165:y:2025:i:c:s0304405x24001983
    DOI: 10.1016/j.jfineco.2024.103975
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    More about this item

    Keywords

    Mutual fund benchmarks; Relative performance evaluation; Fund peer groups: Investor learning; Monitoring; Product market competition;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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