Prof. Jie Ying (Southern Illinois University)
Date: Tuesday, June 28th, 2022
Time: 11:00am – 12:30pm
Location: Room 413, Schackstr. 4, level 4
Title: Peer-based R2 and Mutual Fund Performance
Abstract
Numerous factors are used in asset pricing models, yet only a few are considered for mutual fund benchmarking. We propose a new R2-based measure of mutual fund stock selection skills using the monthly returns of fund holdings and their respective peers. Peer-based R2 (PBR2) is negatively associated with funds’ future performance. The performance prediction remains robust up to 4 quarters following the initial formation of fund portfolios. We show that PBR2 is a better indicator of managerial skill and fund performance than Amihud and Goyenko (2013)’s R2 (AGR2), especially after 2010, the end of its published sample period. Fund flow analyses reveal that investors attend to AGR2, not PBR2, which causes the descreasing returns to scale in the low-AGR2 funds.