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Mutual Fund Style, Characteristic-Matched Performance Benchmarks and Activity Measures: A New Approach

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  • Daniel Buncic
  • Jon E. Eggins
  • Robert J. Hill

Abstract

We propose a new approach for measuring mutual fund style and constructing characteristic-matched performance benchmarks that requires only portfolio holdings and two reference portfolios in each style dimension. The characteristic-matched performance benchmark literature typically follows a bottom-up approach by first matching individual stocks with benchmarks and then obtaining a portfolio’s excess return as a weighted average of the excess returns on each of its constituent stocks. Our approach is fundamentally different in that it matches portfolios and benchmarks directly. We illustrate our approach using portfolio holdings of 1183 fund managers over the period 2002-2009. We characterize the cross-section of fund manager styles and show how average style changes over time. The tracking error volatilities of our characteristic-matched benchmarks compare favorably with those of existing methods. Using our benchmarks we explore the link between activity and performance.

Suggested Citation

  • Daniel Buncic & Jon E. Eggins & Robert J. Hill, 2010. "Mutual Fund Style, Characteristic-Matched Performance Benchmarks and Activity Measures: A New Approach," University of St. Gallen Department of Economics working paper series 2010 2010-20, Department of Economics, University of St. Gallen.
  • Handle: RePEc:usg:dp2010:2010-20
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    References listed on IDEAS

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    More about this item

    Keywords

    Performance Measurement; Tailored Benchmark; Characteristic Matching; Size Profile; Growth Profile; Activity; Excess Return.;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • 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

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