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The performance of mutual funds in the period 19451964
 Journal of Finance
, 1968
"... In this paper I derive a riskadjusted measure of portfolio performance (now known as "Jensen's Alpha") that estimates how much a manager's forecasting ability contributes to the fund's returns. The measure is based on the theory of the pricing of capital assets by Sharpe (1 ..."
Abstract

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In this paper I derive a riskadjusted measure of portfolio performance (now known as "Jensen's Alpha") that estimates how much a manager's forecasting ability contributes to the fund's returns. The measure is based on the theory of the pricing of capital assets by Sharpe (1964), Lintner (1965a) and Treynor (Undated). I apply the measure to estimate the predictive ability of 115 mutual fund managers in the period 19451964—that is their ability to earn returns which are higher than those we would expect given the level of risk of each of the portfolios. The foundations of the model and the properties of the performance measure suggested here are discussed in Section II. The evidence on mutual fund performance indicates not only that these 115 mutual funds were on average not able to predict security prices well enough to outperform a buythemarketandhold policy, but also that there is very little evidence that any individual fund was able to do significantly better than that which we expected from mere random chance. It is also important to note that these conclusions hold even when we measure the fund returns gross of management expenses (that is assume their bookkeeping, research, and other expenses except brokerage commissions were obtained free). Thus on average the funds apparently were not quite successful enough in their trading activities to recoup even their brokerage expenses. Keywords: Jensen's Alpha, mutual fund performance, riskadjusted returns, forecasting ability, predictive ability.
ISSN 13982699STOCK MARKET RISKRETURN INFERENCE. AN UNCONDITIONAL NONPARAMETRIC APPROACH.
, 2004
"... inference. An unconditional nonparametric approach ..."
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STOCK MARKET RISKRETURN INFERENCE. AN UNCONDITIONAL NONPARAMETRIC APPROACH
"... By means of a detailed analysis of the returns of the Standard & Poors 500 (S&P 500) composite stock index over the last fifty years we show how theoretical results and methodological recommendations from the statistical theory of nonparametric curve inference allow one to consistently est ..."
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By means of a detailed analysis of the returns of the Standard & Poors 500 (S&P 500) composite stock index over the last fifty years we show how theoretical results and methodological recommendations from the statistical theory of nonparametric curve inference allow one to consistently estimate expected return and volatility. In this approach we do not postulate an apriori relationship riskreturn nor do we specify the evolution of the first two moments through covariates. Our analysis gives statistical evidence that the expected return of the S&P 500 index as well as the market price of risk (the ratio expected return minus risk free interest rate over volatility) vary significantly through time both in size and sign. In particular, the periods of negative (positive) estimated expected return and market price of risk coincide with the bear (bull) markets of the index as defined in the literature. A complex relationship between risk and expected return emerges which is far from the common assumption of a positive linear timeinvariant relation.