Breloer B, Hühn HL, Scholz H (2016)
Publication Language: English
Publication Type: Journal article
Publication year: 2016
Publisher: Henry Stewart Publications
Book Volume: 17
Pages Range: 195-214
DOI: 10.1057/jam.2016.4
This article studies the impact of market climate on the classic Jensen
alpha (JA) of equity funds. We show analytically that the one-factor JA of a fund consists
of (i) the fund’s alpha based on the assumed multi-factor model driving fund returns
and (ii) further components that are subject to time-dependent market phases of factor
realizations. In our empirical study, we analyze JAs and respective fund rankings for a
survivorship bias-free data set of 3102 US equity mutual funds. Our results show that
factor realizations during the specific lifetime of a fund clearly affect its JA and rank
position. This impact of factor realizations is particularly strong for funds with shorter
lifetimes. To quantify the market climate impact, we compare classic JAs of funds with
their time period-adjusted JAs, removing the influences of market phases. Finally, our main
results are robust when applying alternative multi-factor models as return generating
process of funds.
APA:
Breloer, B., Hühn, H.L., & Scholz, H. (2016). Jensen Alpha and Market Climate. Journal of Asset Management, 17, 195-214. https://dx.doi.org/10.1057/jam.2016.4
MLA:
Breloer, Bernhard, Hannah Lea Hühn, and Hendrik Scholz. "Jensen Alpha and Market Climate." Journal of Asset Management 17 (2016): 195-214.
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