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An investor is evaluating the performance of two actively managed mutual funds, A and B. The annual risk-free rate of return over the period was
An investor is evaluating the performance of two actively managed mutual funds, A and B. The annual risk-free rate of return over the period was 4%, and the average annual return of the market portfolio was 12%. The standard deviation of the market portfolio returns was 20%. The table below reports the statistics and the regression estimation results of the single-index model for annual excess returns of the two funds.
Fund A | Fund B | |
Average annual excess return | 10.6% | 8.4% |
Standard deviation of annual excess returns | 31% | 20% |
Single-index model estimates | 1% + 1.2 (RM-rf) | 2% + 0.8 (RM-rf) |
Standard deviation of the model residuals | 22% | 9% |
Required Calculate the T-square measure for each fund.
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