Chapter 1: Introduction -- Chapter 2: Criteria for Mutual Fund Selection -- Chapter 3: Investment for Intermediate and Long Horizons -- Chapter 4: Estimating Future Performance – The Shrinkage Adjusted Sharpe Ratio -- Chapter 5: Active Versus Passive Investment -- Chapter 6: Target Date Funds,...

The Black-Scholes model and many of its extensions imply a log-normal distribution of stock returns. However, for holding periods of up to a year, the empirical return distribution (both conditional and unconditional) is not log-normal, but rather much closer to the logistic distribution. This...

Many active investors engage in stock selection and market timing. Some may have genuine abilities in doing so. But what is the cost of these activities for investors who believe they possess such abilities but actually don't? We derive analytical expressions for these costs, above and beyond...

Mutual fund investors typically invest for years, or even decades. In contrast, fund rankings are almost invariably based on monthly return parameters. This is a potentially severe problem, because rankings are not invariant to the horizon. Moreover, as the horizon increases, return...

As most investors hold only one or two funds, the Sharpe ratio is the performance measure relevant for them. Employing this measure, we find that only 13% of active U.S. equity funds outperform the market. We estimate the aggregate annual loss to investors in U.S. active equity funds at $235...

The perception that it's hard to beat the market portfolio is widespread. Indeed, passive investment has more than doubled in the last decade. While various different strategies have been suggested to outperform passive indexing, the market is still considered the relevant benchmark to beat. The...

Even after more than six decades since the publication of the breakthrough article by Markowitz, the Mean-Variance framework is still the most commonly employed portfolio management tool. Yet, as portfolio managers know all too well, the optimal diversification and the induced performance are...

Numerous studies have examined the mean/variance efficiency of various market proxies by employing sample parameters and have concluded that these proxies are inefficient. These findings cast doubt about the capital asset pricing model (CAPM), one of the cornerstones of modern finance. This...