Benchmarking benchmarks: measuring characteristic selectivity using portfolio holdings dataKingsley Fong, David Gallagher and Adrian Lee () Accounting and Finance, 2008, vol. 48, issue 5, 761-781 Abstract: This study proposes methodological adjustments to the widely adopted performance benchmarking methodology of Daniel et al. (1997) as a means of improving the precision of alpha measurement for active equity fund managers. We achieve this by considering the monthly updating of characteristic benchmarks and to ensure neutrality to the Standard & Poor's/Australian Stock Exchange 300 index. Applying this benchmark to a representative sample of active Australian equity funds and simulated passive portfolios that mimic fund manager‐style characteristics, we find statistically different and lower tracking error compared with using the standard characteristic benchmark methodology. We also find evidence that the modified benchmark statistically infers an alpha closer to zero compared with the standard benchmark methodology. Our findings suggest that improved specifications of characteristic benchmarks represent better methods in quantifying fund manager skill. Date: 2008 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:acctfi:v:48:y:2008:i:5:p:761-781 Ordering information: This journal article can be ordered from Access Statistics for this article Accounting and Finance is currently edited by Robert Faff More articles in Accounting and Finance from Accounting and Finance Association of Australia and New Zealand Contact information at EDIRC. |
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