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Leveling the Playing Field

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Portfolio Construction, Measurement, and Efficiency

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Abstract

We derive a new test of risk models using the capital investment decisions investors in mutual fund’s make. We show that the model that best explains these decisions is the Capital Asset Pricing model.

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Notes

  1. 1.

    This article summarizes research originally published in Berk and van Binsbergen (2016b).

  2. 2.

    The model was developed independently by Lintner (1965), Mossin (1966), Sharpe (1964), and Treynor (1961), see French (2003) for an analysis of who deserves attribution.

  3. 3.

    See, Black et al. (1972) and Fama and MacBeth (1973).

  4. 4.

    Copernicus incorrectly assumed that the planets followed circular orbits when in fact their orbits are ellipses.

  5. 5.

    Berk and Green (2004), Berk (2005), Berk and van Binsbergen (2016b), and Berk and van Binsbergen (2016c).

  6. 6.

    In a related paper, Berk and van Binsbergen (2016c), we provide an equivalent summary of the results of Berk and van Binsbergen (2016b) but for the full sample period, that is, 1977–2011.

  7. 7.

    The second column of Table 18.2 reports the double-clustered (by fund and time) t-statistics under the null that flows and performance are unrelated.

References

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Author information

Authors and Affiliations

  1. Graduate School of Business, Stanford University, Stanford, CA, 94305-7298, USA

    Jonathan B. Berk

  2. National Bureau of Economic Research, Berkeley, USA

    Jonathan B. Berk & Jules H. van Binsbergen

  3. The Wharton School, University of Pennsylvania, Philadelphia, PA, 19104, USA

    Jules H. van Binsbergen

Authors
  1. Jonathan B. Berk
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  2. Jules H. van Binsbergen
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Correspondence to Jonathan B. Berk .

Editor information

Editors and Affiliations

  1. McKinley Capital Management, Anchorage, Alaska, USA

    John B. Guerard, Jr.

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Berk, J.B., van Binsbergen, J.H. (2017). Leveling the Playing Field. In: Guerard, Jr., J. (eds) Portfolio Construction, Measurement, and Efficiency. Springer, Cham. https://doi.org/10.1007/978-3-319-33976-4_18

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