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Performance Attribution using an APT with Prespecified Macrofactors and Time-Varying Risk Premia and Betas

Published online by Cambridge University Press:  06 April 2009

Lawrence Kryzanowski ,
Simon Lalancette  and
Minh Chau To
Lawrence Kryzanowski
Affiliation:
Department of Finance, Faculty of Commerce and Administration, Concordia University, 1455 de Maisonneuve Blvd. W., Montreal, Quebec H3G 1M8, Canada
Simon Lalancette
Affiliation:
School of Business, University of Quebec at Montreal, C.P. 3888, Succ. Centre Ville, 315 Ste-Catherine East (R-1525), Montreal, Quebec H3C 3P8, Canada
Minh Chau To
Affiliation:
Ecole des Hautes Etudes Commerciales de Montreal, 3000 Chemin de la Cote Ste-Catherine, Montreal, Quebec H3T 2A7, Canada.
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Abstract

This paper assesses the selection and timing abilities of 130 equity mutual funds using a conditional APT model with specified macrofactors, and time-varying risk premia and betas. For all fund categories based on investment objectives, a significant proportion of the funds exhibits negative abnormal asset selection performance based on the unconditional Jensen (1968) alpha, and a reduced proportion of the funds in each category attempts to time the realizations of the macrofactors (including those captured by the residual market factor). The average selection performance of the mutual funds improves and the proportion of funds attempting to time macrofactor realizations declines when measured using the asset selection and factor-timing models with time-varying risk premia and betas.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 32 , Issue 2 , June 1997 , pp. 205 - 224
Copyright
Copyright © School of Business Administration, University of Washington 1997

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