Should Investors Avoid All Actively Managed Mutual Funds ? A Study in Bayesian Performance Evaluation

  title={Should Investors Avoid All Actively Managed Mutual Funds ? A Study in Bayesian Performance Evaluation},
  author={Klaas Baks and Andrew Metrick and Jessica A. Wachter},
This paper analyzes mutual-fund performance from an investor's perspective. We study the portfolio-choice problem for a mean-variance investor choosing among a risk-free asset, index funds, and actively managed mutual funds. To solve this problem, we employ a Bayesian method of performance evaluation; a key innovation in our approach is the development of a flexible set of prior beliefs about managerial skill. We then apply our methodology to a sample of 1,437 mutual funds. We find that some… CONTINUE READING
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