Essays on Performance Evaluation of Portfolio Managers of Mutual and Hedge Funds

Date of Graduation


Document Type


Degree Name

Doctor of Philosophy in Business Administration (PhD)

Degree Level





Alexey Malakhov

Committee Member

Timothy B. Riley

Second Committee Member

Pu Liu


mutual funds, hedge funds, common benchmark funds


This dissertation consists of three essays focusing on the performance evaluation of portfolio managers of mutual and hedge funds. The first essay shows the performance of corporate bond mutual funds tends to be estimated using models with limited empirical validation. I test several models and find considerable variation in quality. That variation leads to meaningful differences with respect to the stylized facts of corporate bond fund performance. Using my preferred BENCH4 model—a novel model based on funds’ common benchmarks—I find average underperformance, substantial relative performance persistence, a small number of funds with positive alphas unattributable to luck, and positive alphas for the most active funds. Variance relative to the BENCH4 model is greatest regarding positive alphas unattributable to luck.

The second essay proposes a set of indirect measures of multi-factor timing and compares their efficacy with the classic Henriksson and Merton (1981) measure. In simulations, I show that indirect measures can better capture the intensity of multi-factor timing activities than the Henriksson-Merton measure. I apply indirect measures along with the Henriksson-Merton measure to investigate the efficacy of capturing multi-factor timing activity among hedge fund managers. My indirect measures generate superior performance in long-term out-of-sample tests. I further show that my measures capture unique aspects of active portfolio management not captured by extant measures of hedge fund performance.

The third essay finds that there is significant doubt about whether, in practice, the premiums associated with academic pricing factors can be successfully captured. I evaluate that question using the growing number of factor investing mutual funds that explicitly seek to capture those premiums. On average, such funds do not outperform, but there is substantial cross-sectional variation. The factor investing funds with the portfolios that most closely match the underlying factors—determined using my novel characteristic active share (CAS) measure—outperform those with poorer matching. Moreover, even after all costs, the low CAS funds duplicate the performance of the factors themselves.

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