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| Author: | Baks, K. P. Metrick, A. Wachter, J. |
| Title: | Should investors avoid all actively managed mutual funds? A study in Bayesian performance evaluation |
| Journal: | Journal of Finance
2001 : FEB, VOL. 56:1, p. 45-85 |
| Index terms: | Unit trusts Investment trusts Bayesian statistics |
| Freeterms: | Mutual funds |
| Language: | eng |
| Abstract: | This paper analyzes mutual-fund performance from an investor's perspective. The authors study the portfolio-choice problem for a mean-variance investor choosing among a risk-free asset, index funds, and actively managed mutual funds. To solve this problem, they employ a Bayesian method of performance evaluation. A key innovationin their approach is the development of a flexible set of prior beliefs about managerial skill. They then apply their mthodology to sample of 1437 mutual funds. They finf that some extremely skeptical prior beliefs nevertheless lead to economically significant allocations to active managers. |
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