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Journal of Asset Management

, Volume 12, Issue 4, pp 292–307 | Cite as

Performance evaluation of mutual fund investments: The impact of non-normality and time-varying volatility

  • Ioannis D Vrontos
  • Loukia Meligkotsidou
  • Spyridon D Vrontos
Original Article

Abstract

Extending previous work on mutual fund pricing, this article introduces the idea of modeling the conditional distribution of mutual fund returns using a fat tailed density and a time-varying conditional variance. This approach takes into account the stylized facts of mutual fund return series, that is heteroscedasticity and deviations from normality. We evaluate mutual fund performance using multifactor asset pricing models, with the relevant risk factors being identified through standard model selection techniques. We explore potential impacts of our approach by analyzing individual mutual funds and show that it can be economically important.

Keywords

fat tails GARCH model selection techniques mutual funds risk factors portfolio construction 

Notes

Acknowledgements

We thank Mark Carhart for giving us access to the data of the ‘momentum’ factor. The Fama and French (1993) ‘size’ and ‘book-to-market’ factors’ data were obtained from Kenneth French's homepage.

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Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Ltd 2011

Authors and Affiliations

  • Ioannis D Vrontos
    • 1
  • Loukia Meligkotsidou
  • Spyridon D Vrontos
  1. 1.Department of StatisticsAthens University of Economics and BusinessAthensGreece

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