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Moving the Goalposts? Mutual Fund Benchmark Changes and Relative Performance Manipulation

Author

Listed:
  • Kevin Mullally
  • Andrea Rossi

Abstract

We analyze changes to mutual funds’ self-declared benchmarks using hand-collected data from funds’ prospectuses. Under existing rules, funds can freely change their benchmark indexes and, implicitly, the historical returns to which they compare their past performance. Funds exploit this loophole by adding (dropping) indexes with lower (higher) past returns, thereby materially improving the appearance of their benchmark-adjusted returns. High-fee funds, broker-sold funds, and funds experiencing poor performance and outflows are more likely to engage in this behavior. These funds subsequently attract additional flows despite continuing to underperform their peers.

Suggested Citation

  • Kevin Mullally & Andrea Rossi, 2025. "Moving the Goalposts? Mutual Fund Benchmark Changes and Relative Performance Manipulation," The Review of Financial Studies, Society for Financial Studies, vol. 38(4), pages 1067-1119.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:4:p:1067-1119.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhae069
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    More about this item

    Keywords

    G11; G14; G20; G23; G50; G53;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G50 - Financial Economics - - Household Finance - - - General
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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