Market crises and benchmark-adjusted fund alphas in a small market context
This paper investigates the impact of using benchmark-adjusted alphas to assess the performance of small market mutual funds, investing in domestic and European equities. For the 2000-2020 period, our results show that fund benchmarks exhibit significantly negative alphas, which lead to an underest...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
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Universidade de Santiago de Compostela
2023-09-01
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| Series: | Revista Galega de Economía |
| Subjects: | |
| Online Access: | https://revistas.usc.gal/index.php/rge/article/view/9140 |
| _version_ | 1827804195609116672 |
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| author | Fernando Lopes Paulo Leite Maria Carmo Correia Pablo Durán-Santomil |
| author_facet | Fernando Lopes Paulo Leite Maria Carmo Correia Pablo Durán-Santomil |
| author_sort | Fernando Lopes |
| collection | DOAJ |
| description |
This paper investigates the impact of using benchmark-adjusted alphas to assess the performance of small market mutual funds, investing in domestic and European equities. For the 2000-2020 period, our results show that fund benchmarks exhibit significantly negative alphas, which lead to an underestimation of mutual fund performance when employing standard models. As a result, benchmark-adjusted alphas are significantly higher than unadjusted alphas for both fund categories, though differences are larger for domestic than for European funds. We also find that the impact of the benchmark-adjustment procedure depends on market states. The domestic (European) benchmark exhibits considerably lower (higher) alphas during crisis than during non-crisis periods. During market crises, differences between pre- and post-adjustment alphas are statistically significant only for domestic funds, whereas during non-crisis periods both fund categories exhibit significant performance improvements. Our findings suggest that the benchmark-adjustment procedure has a higher impact when benchmark indices exhibit higher concentration.
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| first_indexed | 2024-03-11T21:07:26Z |
| format | Article |
| id | doaj.art-fff524444db94661bac9bab8f5d759f1 |
| institution | Directory Open Access Journal |
| issn | 1132-2799 2255-5951 |
| language | English |
| last_indexed | 2024-03-11T21:07:26Z |
| publishDate | 2023-09-01 |
| publisher | Universidade de Santiago de Compostela |
| record_format | Article |
| series | Revista Galega de Economía |
| spelling | doaj.art-fff524444db94661bac9bab8f5d759f12023-09-29T12:24:20ZengUniversidade de Santiago de CompostelaRevista Galega de Economía1132-27992255-59512023-09-0132310.15304/rge.32.3.9140Market crises and benchmark-adjusted fund alphas in a small market contextFernando Lopes0Paulo Leite1Maria Carmo Correia2Pablo Durán-Santomil3School of Management, Polytechnic Institute of Cávado and Ave, Campus do IPCA, 4750-180 Barcelos, PortugalPolytechnic Institute of Cávado and AveSchool of Management, Polytechnic Institute of Cávado and Ave, Campus do IPCA, 4750-180 Barcelos, PortugalDepartment of Finance and Accounting, Economics Faculty, Universidade de Santiago de Compostela, Avda. Burgo de las Naciones, 15704 Santiago de Compostela, Spain This paper investigates the impact of using benchmark-adjusted alphas to assess the performance of small market mutual funds, investing in domestic and European equities. For the 2000-2020 period, our results show that fund benchmarks exhibit significantly negative alphas, which lead to an underestimation of mutual fund performance when employing standard models. As a result, benchmark-adjusted alphas are significantly higher than unadjusted alphas for both fund categories, though differences are larger for domestic than for European funds. We also find that the impact of the benchmark-adjustment procedure depends on market states. The domestic (European) benchmark exhibits considerably lower (higher) alphas during crisis than during non-crisis periods. During market crises, differences between pre- and post-adjustment alphas are statistically significant only for domestic funds, whereas during non-crisis periods both fund categories exhibit significant performance improvements. Our findings suggest that the benchmark-adjustment procedure has a higher impact when benchmark indices exhibit higher concentration. https://revistas.usc.gal/index.php/rge/article/view/9140Mutual fund performanceBenchmark-adjusted alphasMarket crisesMultifactor models |
| spellingShingle | Fernando Lopes Paulo Leite Maria Carmo Correia Pablo Durán-Santomil Market crises and benchmark-adjusted fund alphas in a small market context Revista Galega de Economía Mutual fund performance Benchmark-adjusted alphas Market crises Multifactor models |
| title | Market crises and benchmark-adjusted fund alphas in a small market context |
| title_full | Market crises and benchmark-adjusted fund alphas in a small market context |
| title_fullStr | Market crises and benchmark-adjusted fund alphas in a small market context |
| title_full_unstemmed | Market crises and benchmark-adjusted fund alphas in a small market context |
| title_short | Market crises and benchmark-adjusted fund alphas in a small market context |
| title_sort | market crises and benchmark adjusted fund alphas in a small market context |
| topic | Mutual fund performance Benchmark-adjusted alphas Market crises Multifactor models |
| url | https://revistas.usc.gal/index.php/rge/article/view/9140 |
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