In this paper I derive a risk-adjusted 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 1945-1964—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 buy-the-marketand-hold 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, risk-adjusted returns, forecasting ability, predictive ability.

*The importance of effective valuation systems and theory. *Issues associated with property valuation theory and methodology. *The need for and econometric or statistical property valuation method. 2 – LITERATURE REVIEW

Abstract. Annual and monthly REIT returns display statistically significant serial persistence, although the two types of persistence behavior are qualitatively different. By contrast, quarterly REIT returns do not display serial persistence. This strongly suggests that linear multifactor market models cannot describe REIT investment behavior. Annual REIT returns fail to reflect corresponding persistence behavior in underlying real estate returns precisely when the REITs are large enough to attract institutional investor interest. Institutional investors move in and out of large-capitalization REITs in ways that negatively impact investment returns.

Portfolio managers claim to be able to generate abnormal returns through either superior asset selection or market timing. The Treynor and Mazuy (TM) model is the mostly used return-based approach to isolate market timing skills, but all existing corrections of the regression intercept can be manipulated by a manager who can trade derivatives. We revisit the TM model by applying the original option replication approach proposed by Merton. We exploit both the linear and the quadratic coefficients of the TM regression to assess the replicating cost of the cheapest option portfolio with the same convexity. The application of the new correction on two samples of market timing funds delivers particularly encouraging empirical results. The portfolio replication approach reveals that the performance of market timing funds increases with their convexity level, and the effect is larger and significant for positive market timers. All other classical corrections of the TM model underestimate the necessary adjustment for the fund’s convexity, leaving positive timers with negative performance and vice-versa. This bias explains the converging conclusion of most studies based on the TM model that market timers do not outperform the market. Furthermore, inadequate correction methods weaken the link between the magnitude of market timing and the associated performance. Such results suggest that a correction of alpha based on an arbitrage argument clarifiestheroleofmarkettiminginthe generation of performance.

Studies have shown mixed results in testing fund-selection ability amongst investors as a possible explanation to the mutual fund puzzle proposed by Gruber (1996). While most studies focus on the US mutual fund market, Keswani & Stolin (2008) propose that the smart money effect is empirically evident in the UK market, using data on funds from 1991-2000. This study aims to evaluate their hypothesis on the latest dataset from 2000 – 2010. The motivation behind doing so lies in the tremendous growth facing the U.K. mutual fund industry in the last decade or so. Most of the growth in the industry’s history has taken place during this time. Hence the argument of smart money as an explanation to the growth of the mutual fund industry dictates that fund-selection ability should be especially prominent during our sample period. However we find that this is not the case. Possible explanations for the failure to find the smart money effect include excessive risk-taking by fund managers and increased search costs for investors, amongst other reasons.