Main Article Content

Fernando Lopes
School of Management, Polytechnic Institute of Cávado and Ave, Campus do IPCA, 4750-180 Barcelos, Portugal
Paulo Leite
Polytechnic Institute of Cávado and Ave
Maria Carmo Correia
Polytechnic Institute of Cávado and Ave
Pablo Durán-Santomil
Department of Finance and Accounting, Economics Faculty, Universidade de Santiago de Compostela, Avda. Burgo de las Naciones, 15704 Santiago de Compostela, Spain
Vol 32 No 3 (2023), Articles, pages 1-17
Submitted: 13-04-2023 Accepted: 14-07-2023 Published: 09-10-2023
Copyright How to Cite Cited by


Most mutual fund performance evaluation studies interpret fund alphas as the incremental performance of managers in relation to passive benchmark indices, which should exhibit statistically insignificant alphas. However, if these indices present significant non-zero alphas, standard (non-adjusted) fund alphas are biased. This paper investigates the impact of using benchmark-adjusted alphas to assess the performance of Portuguese-based mutual funds, investing in domestic and European equities. For the period 2000-2020, our results show that fund benchmarks exhibit significantly negative alphas, which lead to an underestimation of mutual fund performance when employing standard models. As a result, benchmark-adjusted alphas are significantly higher than unadjusted alphas for both fund categories, though the differences are larger for domestic than for European funds. We have also found that the impact of the benchmark-adjustment procedure depends on the state of markets. The domestic (European) benchmark exhibits considerably lower (higher) alphas during crisis than during non-crisis periods. During market crises, the differences between pre- and post-adjustment alphas are statistically significant only for domestic funds, whereas during non-crisis periods, both fund categories exhibit significant performance improvements. Our findings suggest that the benchmark-adjustment procedure has a higher impact when benchmark indices exhibit higher concentration.