Alternative benchmarks for evaluating mutual fund performance

Jay C. Hartzell, Tobias Mühlhofer, Sheridan D. Titman

Research output: Contribution to journalArticlepeer-review

30 Scopus citations


While real estate investment trusts (REITs) have experienced very high growth rates over the past 15 years, the growth in mutual funds that invest in REITs has been even more dramatic. REIT mutual fund returns are typically presented relative to the return on a simple value-weighted REIT index. We ask whether including additional factors when benchmarking funds' returns can improve the explanatory power of the models and offer more precise estimates of alpha. We investigate three sets of REIT-based benchmarks, plus an index of returns derived from non-REIT real estate firms, namely homebuilders and real estate operating companies. The REIT-based factors are a set of characteristic factors, a set of property-type factors and a set of statistical factors. Using traditional single-index benchmarks, we find that about 6% of the REIT funds exhibit significant positive performance using traditional significance levels, which is more than twice what random chance would predict. However, with the multiple-index benchmarks that we prefer, this falls considerably to only 0.7%. In addition, we find that these sets of factors and the non-REIT indices better explain the month-to-month returns of the REIT mutual funds. This suggests that investors or researchers evaluating REIT mutual fund performance may benefit from a multiple-benchmark approach.

Original languageEnglish (US)
Pages (from-to)121-154
Number of pages34
JournalReal Estate Economics
Issue number1
StatePublished - Mar 1 2010
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Alternative benchmarks for evaluating mutual fund performance'. Together they form a unique fingerprint.

Cite this