Which is not a true statement concerning the empirical evidence of mutual fund performance?
Click on the arrows to vote for the correct answer
A. B. C. D. E. F.C
All of these are false. The opposite is true in all answers.
Let's go through each answer choice and evaluate its accuracy concerning the empirical evidence of mutual fund performance:
A. Sub-par performance is associated with low expense ratios. This statement is false. Empirical evidence suggests that there is a negative correlation between expense ratios and mutual fund performance. In general, funds with lower expense ratios tend to outperform those with higher expense ratios. Lower expenses reduce the drag on fund returns and increase the potential for higher net returns to investors.
B. Managers can forecast large changes in the market. This statement is false. Empirical evidence suggests that the ability of fund managers to consistently forecast large changes in the market is limited. While some managers may have short-term success in predicting market movements, studies have shown that the majority of managers fail to consistently outperform the market over the long term based on their forecasting abilities. The efficient market hypothesis suggests that it is difficult to consistently outperform the market through superior forecasting.
C. All of these answers are false. This statement is not a true statement. It is actually the opposite; all of the answers are not false. There are some true statements among the answer choices.
D. Most fund managers achieved gross returns lower than the DJIA. This statement is true. Empirical evidence suggests that the majority of mutual fund managers fail to outperform broad market indices, such as the Dow Jones Industrial Average (DJIA), over the long term. This phenomenon is known as the "active management underperformance" or the "indexing effect." Factors such as high management fees, transaction costs, and the difficulty of consistently outperforming the market contribute to this observation.
E. Risk is not consistent with fund objectives. This statement is false. Fund managers typically construct portfolios and select investments based on their fund's stated objectives and risk tolerance. They aim to align the fund's risk profile with its objectives and the risk preferences of its investors. While there may be instances of fund managers deviating from their stated objectives, the general expectation is that risk should be consistent with fund objectives.
F. All of these answers are true. This statement is false. As discussed above, answer choice C states that all of the answers are false, which is incorrect. Therefore, not all of the answers are true.
In conclusion, the correct answer is C.