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The Effect of Portfolio Weighting on Investment Performance Evaluation: The Case of Actively Managed Mutual Funds Authors: Stanley B. Block, Dan W. French Source: Journal of Economics and Finance, volume 26, number 1 Date: Spring 2002 Size: 187392 Bytes |
Abstract
This article deals with the problem of benchmark choice in evaluating portfolio performance. Most benchmarks are value-weighted, while portfolios tend to be equally-weighted. In order to evaluate the over or underperformance of portfolios properly, the authors suggest using a two-factor model, where one factor is a value-weighted index and the other is an equally-weighted index. They conducted a study using this model, which is in fact a simple extension of the traditional CAPM, and they found that their model provides a better result than the single-index model.
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