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The effect of portfolio weighting on investment performance evaluation: The case of actively managed mutual funds

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  • Stanley Block
  • Dan French

Abstract

Among the factors influencing investment performance measurement is the weight dedicated to each security. This paper develops metrics for measuring the extent of equal weighting and value weighting of a portfolio. A sample of 506 actively managed mutual funds shows that funds tend to be equally weighted to a greater degree than they are value weighted, implying that investment performance based solely on a single value-weighted benchmark may not adequately identify excess performance. We propose a two-factor model utilizing both a value-weighted and an equally weighted index and show that the model provides a better fit than the single-index model.(JEL G1) Copyright Springer 2002

Suggested Citation

  • Stanley Block & Dan French, 2002. "The effect of portfolio weighting on investment performance evaluation: The case of actively managed mutual funds," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 26(1), pages 16-30, March.
    • Handle: RePEc:spr:jecfin:v:26:y:2002:i:1:p:16-30
    DOI: 10.1007/BF02744449
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    References listed on IDEAS

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    Cited by:

    1. Martin Gold, 2010. "Fiduciary Finance," Books, Edward Elgar Publishing, number 13813.
    2. Beatrice Bertelli & Costanza Torricelli, 2024. "The trade-off between ESG screening and portfolio diversification in the short and in the long run," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(2), pages 298-322, June.
    3. Jon Eggins & Robert J. Hill, 2008. "Momentum and Contrarian Stock-Market Indices," Discussion Papers 2008-07, School of Economics, The University of New South Wales.
    4. Hakan Er & Adnan Hushmat, 2017. "The application of technical trading rules developed from spot market prices on futures market prices using CAPM," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 7(3), pages 313-353, December.

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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