US mutual fund performance studies

In a 2011 paper, "Mutual Funds", authors Elton, Gruber and Blake provide a survey article in which they review the modern literature on the characteristics and performance of mutual funds. The following tables of US mutual fund performance studies are derived from the study.

Studies include those which examine the performance of stock mutual funds (after expenses) and those which study the pre-expense performance of stock funds. Other studies examine stock fund managers' timing ability; additional studies explore the persistence of stock fund performance.

Additional studies examine bond fund performance.

Performancce
Early studies on stock fund performance use benchmarks derived from single factor measures such as the Sharpe ratio, Treynor's alpha, or Jenson's alpha, all based on the CAPM (Capital Asset Pricing Model). As many stock funds hold portfolios that differ from the overall market (for example, concentrating on mid cap or small cap stocks), later studies draw upon the development of multi-factor models, such as the Fama-French three factor model (market, size, and value) or a four factor model, created by adding momentum to the three Fama-French factors. A fifth factor, involving bond returns is also sometimes used.

Studies using mutual fund holdings data attempt to determine manager skill. These studies indicate that, before costs, managers, on average, possess stock selection skill, but actual performance is insufficient to overcome the costs of management.

Timing
Researchers have used two different ways to measure mutual fund managers' timing ability. One method uses return data and a second uses holdings data. In addition, two computational models commonly serve as the basis for calculations used in timing studies: the Treynor and Mazuy (1966) method, and the Henriksson (1984) and Henriksson and Merton (1981) method.

Early studies found no evidence of successful timing. However later studies would measure timing by looking at changes in the sensitivity to a single index. Bollen and Busse (2001); Kaplan and Sensoy (2005); and Jiang, Yao and Yu (2007) take this approach and find positive timing.

Other researchers argue that changes in the sensitivity to the market often come about because of changes in sensitivity to other factors (for example, by adding higher beta or smaller cap stocks to the fund portfolio). Elton, Gruber and Blake (2011) and Ferson and Qian (2006) take this approach and find no evidence of successful timing even though they too find successful timing when timing is measured using only sensitivity to a single market index.

Bond funds
The four bond fund studies each develop and use a differing array of benchmarks to evaluate bond mutual funds.

Blake, Elton & Gruber (1994)
Evaluated bond funds using three sets of benchmarks:
 * 1) A one-index model (either a general bond index or the submarket index that Morningstar identified as most like the bond fund)
 * 2) Two three-index models
 * 3) A six- index model. The six indexes were based on the major types of securities held by the fund and included an intermediate government bond index, a long-term government bond index, an intermediate corporate bond index, a long-term corporate bond index, a high-yield bond index, and a mortgage bond index.

Elton, Gruber and Blake (1995)
Employed both time series and cross sectional tests on bond pricing and developed a new six-index model of bond pricing. The six variables included:
 * 1) An aggregate index of stock returns;
 * 2) An aggregate index of bond returns;
 * 3) A measure of risk premium in the bond market (return on high yield bonds minus a government bond index),
 * 4) A series to represent option valuation (the return on mortgage bonds),
 * 5) Two variables to measure unanticipated changes in inflation and unanticipated changes in GNP.

Comer and Rodriguez (2006)
Comer and Rodriguez use a single model and test a six-index model:
 * 1) Single index model.
 * 2) The six indexes they employ include three corporate government maturity return indexes (1 to 5 years, 5 to 10 years, and beyond 10 years), the return on high-yield bonds, the return on mortgages, and the return on Treasury bills.

Chen, Ferson and Peters (2010)
Chen, Ferson and Peters chose indexes based on:
 * 1) The term structure of interest rates,
 * 2) Credit spreads,
 * 3) Liquidity spreads,
 * 4) Mortgage spreads,
 * 5) Exchange rates,
 * 6) A measure of dividend yield and equity volatility.