Mutual fund performance at long horizons

Hendrik Bessembinder, Michael J. Cooper, Feng Zhang

Research output: Contribution to journalArticlepeer-review

Abstract

The percentage of U.S. equity mutual funds that outperform the SPY ETF over the last 30 years decreases substantially as the horizon over which returns are measured is increased. Further, some funds with positive monthly alpha estimates have negative long-horizon abnormal returns. These results reflect positive skewness in the distribution of fund returns that increases with horizon, and highlight the limitations of conditional arithmetic means of short-horizon returns (e.g., alpha) for long-horizon investors. We tabulate an aggregate wealth loss of $1.02 trillion to mutual fund investors over our 30-year sample, when opportunity costs are based on beta-adjusted SPY returns.

Original languageEnglish (US)
Pages (from-to)132-158
Number of pages27
JournalJournal of Financial Economics
Volume147
Issue number1
DOIs
StatePublished - Jan 2023

Keywords

  • Investor wealth loss
  • Long-horizon performance
  • Mutual funds
  • Skewness

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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