Investing In Equity Mutual Funds
By Ľuboš Pástor, Rob Stambaugh. 2002
419 citations recorded by the source corpus.
We construct optimal portfolios of equity funds by combining historical returns on funds and passive indexes with prior views about asset pricing and skill. By including both benchmark and nonbenchmark indexes, we distinguish pricing-model inaccuracy from managerial skill. Even modest confidence in a pricing model helps construct portfolios with high Sharpe ratios. Investing in active mutual funds can be optimal even for investors who believe active managers cannot outperform passive indexes. Optimal portfolios exclude hot-hand funds even for investors who believe momentum is priced. Our large universe of funds offers no close substitutes for the Fama-French and momentum benchmarks.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/9a6a9412ad8f590c39be8b2cc714e6246a827c7d
How researchers see this paper
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In Economics and Econometrics
- Melvyn Teo
- Doron Avramov
- Robert Kosowski
- Russ Wermers
- Nicolas P. B. Bollen
- Matthew I. Spiegel
- H. Zhang
- Harry Mamaysky
In Finance
- Melvyn Teo
- Robert Kosowski
- Doron Avramov
- H. Zhang
- Matthew I. Spiegel
- Nicolas P. B. Bollen
- Harry Mamaysky
- Russ Wermers
Citations in the corpus
- Investing in Mutual Funds when Returns are Predictable (2006, positive): “Following Pastor and Stambaugh (2002b), we pick a risk-aversion measure that guarantees that, if the market portfolio and a risk-free asset are available for investment in December 2002, an investor’s entire wealth will be allocated to the market portfolio.14”
- Predicting stock returns (2006, neutral): “Keim and Stambaugh (1986) and Fama and French (1989) discover the macroeconomic predictors using data realized up to December 1987.”
- Predictable Returns and Asset Allocation: Should a Skeptical Investor Time the Market? (2009, neutral): “The natural logarithm of the dividendprice ratio is used as the predictor variable.”
- Improved Forecasting of Mutual Fund Alphas and Betas (2007, methodology): “19The estimated dynamic Kalman filter model bears some philosophical resemblance to the Bayesian approaches found in Baks, Metrick, and Wachter (2001), and Pástor and Stambaugh (2002).”
- Do Hot Hands Exist Among Hedge Fund Managers? An Empirical Evaluation (2006, neutral): “Ben Dor, Jagannathan, and Meier (2003) used two stage regressions; Pastor and Stambaugh (2002b) and Pastor and Stambaugh (2002a)”