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No Abnormal Returns in Real Estate Mutual Funds

2/25/08
Kevin C. H. Chiang , associate professor of business administration, co-authored an article with Kirill Kozhevnikov, Ming-Long Lee and Craig Wisen that was published in the spring, 2008 issue of Real Estate Economics.

The article is titled "Further Evidence on the Performance of Funds of Funds:  The Case of Real Estate Mutual Funds."  The study examines funds of funds that are created when investment companies invest in other investment companies.  Although the additional layer of fees incurred by funds of funds has a negative effect on returns, there is empirical evidence that real estate funds of funds gtenerate superior performance net of fees and risk adjustments.  The evidence is inconsistent with a growing consensus that most actively managed mutual funds do not, on average, generate excess returns after adjusting for fees and risk.  This study explains this apparent contradiction and finds that most real estate funds of funds do not outperform their benchmarks under alternative risk adjustment specifications.