TABLE OF CONTENTS Overview by Sudipto Bhattacharya
London School of Economics
Mutual funds play a very visible and growing role in financial markets. The proliferation of mutual funds is part of a more general trend involving a growing importance of institutional investors. Total assets under management in the U.S. market have evolved from $50 billion and 500 funds in 1975 to $10 trillion and 9,000 mutual funds being offered today. [1] Following this trend, research in finance has increasingly devoted efforts to understanding mutual funds focusing on their added value in particular. A question that has been looked at extensively is whether mutual funds, and particularly the actively managed funds outperform the market.
The three chapters in this section seek to shed light on this question, but more broadly they analyze three issues that are central to the debate on the role and added value of mutual funds. Each is addressed by one of the chapters.
The first issue, the performance measurement of mutual funds, is addressed in Chapter 7, by Lehmann and Timmermann. The persistence of rankings across mutual funds makes this an important issue. Lehmann and Timmermann focus in particular on methodological (econometric) questions related to the power of econometric tests in trying to assess the performance of mutual funds.
The second issue focuses on the behavior of the investors in mutual funds. How...
