Mutual fund performance: dividends do matter

Abstract

This article studies the bias in mutual fund performance when a nondividend-reinvesting benchmark is used. Our empirical findings show how performance worsens when using a benchmark that includes reinvestment dividends. We also find that inferences about managers’ ability related to economic states are biased by the effect of omitting dividends when selecting a benchmark.

Keywords:

• mutual funds
• performance
• dividends
• benchmark
• market factor

JEL Classification:

• G12
• G23