MUTUAL FUND PERFORMANCE

Within the last few years consider­able progress has been made in three closely related areas—the theory of portfolio selection,1 the theory of the pricing of capital assets under con­ditions of risk,2 and the general behavior of stock-market prices.3 Results obtained in all three areas are relevant for evalu­ating mutual fund performance. Unfor­tunately, few of the studies of mutual funds have taken advantage of the sub­stantial backlog of theoretical and em­pirical material made available by recent studies in these related areas. However, one paper pointing the direction for future studies of mutual fund performance has appeared. Drawing on results ob­tained in the field of portfolio analysis, Jack L. Treynor has suggested a new predictor of mutual fund performance4— one that differs from virtually all those used previously by incorporating the vol­atility of a fund's return in a simple yet meaningful manner. This paper attempts to extend Trey-nor's work by subjecting his proposed measure to empirical test in order to evaluate its predictive ability. But we will also attempt to do something more —to make explicit the relationships be­tween recent developments in capital theory and alternative models of mutual fund performance and to subject these alternative models to empirical test... Read full text at http://www.420megs.com/users/iklan/Mutual-Fund-Performance.pdf