Evaluating the performance of actively managed funds: an econometric analysis

The literature has been wondering, for years, why investors continue to prefer active management strategies for their assets even if empirical evidence shows that active managers are mostly unable to beat their passive counterparts. This thesis aims to bring further empirical evidence to the scientific debate by analyzing the performance of a large number of actively managed funds operating on the US market between 2000 and 2020. The four-factor model by Carhart was tested on a large panel dataset including all actively managed funds that have invested on the US equity market between 2000 and 2020. The analysis was performed on weakly data over periods of three years, in order to account for all funds which were created later than 2000. Our results suggest that, exclusively before the 2008 crisis, the top performing funds were able to produce significant abnormal returns, while poor performing funds were never able to produce significantly negative abnormal returns with the exception for the last triennium in which we found a significantly negative excess return. Moreover, our analysis has revealed that the four-factor model by Carhart provides more explanations on how abnormal returns, if there are any, are achieved by mutual funds. In particular, we found that the momentum factor and the size factor are particularly relevant in explaining the excess returns yielded by top performing active mutual funds.