TY  - JOUR
AU  - Pastor,Lubos
AU  - Stambaugh,Robert F.
TI  - Evaluating and Investing in Equity Mutual Funds
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7779
PY  - 2000
Y2  - July 2000
UR  - http://www.nber.org/papers/w7779
L1  - http://www.nber.org/papers/w7779.pdf
N1  - Author contact info:
Lubos Pastor
University of Chicago
Booth School of Business
5807 South Woodlawn Ave
Chicago, IL  60637
Tel: 773/834-4080
Fax: NA
E-Mail: lubos.pastor@chicagobooth.edu

Robert F. Stambaugh
Finance Department
The Wharton School
University of Pennsylvania
Philadelphia, PA   19104-6367
Tel: 215/898-5734
Fax: 215/898-6200
E-Mail: stambaugh@wharton.upenn.edu
AB  - Our framework for evaluating and investing in mutual funds combines observed returns on funds and passive assets with prior beliefs that distinguish pricing-model inaccuracy from managerial skill.  A fund's  alpha' is defined using passive benchmarks.  We show that returns on non-benchmark passive assets help estimate that alpha more precisely for most funds.  The resulting estimates generally vary less than standard estimates across alternative benchmark specifications.  Optimal portfolios constructed from a large universe of equity funds can include actively managed funds even when managerial skill is precluded. The fund universe offers no close substitutes for the Fama-French and momentum benchmarks.
ER  -