Should Benchmark Indices Have Alpha? Revisiting Performance Evaluation

@inproceedings{Cremers2010ShouldBI,
  title={Should Benchmark Indices Have Alpha? Revisiting Performance Evaluation},
  author={M. F. G. Cremers and Antti Petajisto and Eric Zitzewitz},
  year={2010}
}
Standard Fama-French and Carhart models produce economically and statistically significant nonzero alphas even for passive benchmark indices such as the S&P 500 and Russell 2000. We find that these alphas primarily arise from the disproportionate weight the Fama-French factors place on small value stocks which have performed well, and from the CRSP value-weighted market index which is a downward-biased benchmark for U.S. stocks. We explore alternative ways to construct these factors as well as… CONTINUE READING

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