True Statement Concerning Empirical Evidence of Mutual Fund Performance

C

There is a positive relationship between stated objectives and measure of risk, with risk measures increasing as objectives become more aggressive.

The empirical evidence of mutual fund performance provides insights into the actual results achieved by mutual funds in comparison to various benchmarks or market indices. Let's evaluate each statement to determine which one is true:

A. more aggressive funds did not outperform more conservative funds: This statement suggests that funds with higher risk levels did not achieve superior performance compared to funds with lower risk levels. The veracity of this statement depends on the specific time period and the definition of "aggressive" and "conservative" funds. However, in general, it is plausible that more aggressive funds, which typically invest in higher-risk assets, may have the potential for higher returns but also higher volatility.

B. over 50 percent of the funds outperform the DJIA: The DJIA (Dow Jones Industrial Average) is a widely followed stock market index that represents 30 large publicly traded companies in the United States. It is important to note that the performance of mutual funds can vary significantly, and it is challenging for a majority of funds to consistently outperform a well-diversified market index like the DJIA. Therefore, it is unlikely that over 50 percent of funds consistently outperform the DJIA.

C. risk measures increase as fund objectives become more aggressive: This statement suggests that as fund objectives become more aggressive, the associated risk measures also increase. This statement aligns with the general principle that higher-risk investments tend to have higher potential returns but also higher volatility and downside risk. Therefore, it is reasonable to expect that risk measures increase as fund objectives become more aggressive.

D. successful market forecasting was accomplished overall by fund managers: This statement implies that fund managers have consistently demonstrated the ability to accurately forecast market movements, leading to successful investment decisions. However, empirical evidence has shown that consistently and accurately forecasting market movements is extremely challenging, even for experienced professionals. Various studies have indicated that a large majority of fund managers do not consistently outperform the market over the long term.

E. none of these answers: This option suggests that none of the provided statements are true. It would be the correct answer if none of the statements accurately represent the empirical evidence of mutual fund performance.

F. good performance is associated with high expense ratios: This statement suggests that mutual funds with higher expense ratios tend to deliver better performance. However, this statement is generally not supported by empirical evidence. High expense ratios can erode the returns earned by investors over time. Research has consistently shown that funds with lower expense ratios tend to outperform funds with higher expense ratios, especially when considering the long-term investment horizon.

In conclusion, based on the given options, the most plausible true statement concerning the empirical evidence of mutual fund performance is:

C. Risk measures increase as fund objectives become more aggressive.