【IEF Seminar 33】A.P. Jue Ren: Mutual Fund Style Analysis- A Stochastic Dominance Approach”

发布者:唐晶发布时间:2018-07-06浏览次数:144

EFIT Yukun Huang

On the afternoon of June 28, Jue Ren, an Assistant Professor of Economics and Finance in the M.J. Neeley School of Business at Texas Christian University, delivered a report entitled “Mutual Fund Style Analysis: A Stochastic Dominance Approach” in 117, Weiyu Building.

First, Dr. Ren introduced that on average, the return of mutual fund is lower than the market, so why we still poll money into mutual fund? This is called actively managed mutual fund puzzle. The traditional evaluation of the puzzle is to use sharpe ratio to calculate the mean return of the portfolio. However, traditional evaluation has strong assumptions on investors’ preferences and does not account for higher moments. So she intend to use stochastic dominance test with subsampling approach to do the evaluation.

Dr. Ren classified the mutual fund styles into 4 kinds: aggressive funds, growth funds, growth and income and income funds. Several tests are built on this classification.

The conclusions are listed here. First, utility function and higher moments are important in performance evaluation. We find little evidence that actively managed mutual fund on average underperform the market. We also highlight the underperformance of aggressive mutual fund. In recessions, Income fund and Growth & Income fund second order stochastically dominate the market. Finally, the mutual funds chosen by stochastic dominance approach have superior future performance.