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Purpose – This paper aims to evaluate the risk‐adjusted performance of US‐based international equity funds using objective statistical measures grounded in modern portfolio theory, and to present the results in a manner which is easily understood by the average investor.Design/methodology/approach – This study evaluates the performance of 50 large US‐based international equity funds using risk‐adjusted returns during 1994‐2003. In particular, a relatively new risk‐adjusted performance measure (M squared), first proposed by Franco Modigliani and Leah Modigliani in 1997, is used to evaluate these equity funds.Findings – The empirical results show that the funds with the highest average returns may lose their attractiveness to investors once the degree of risk embedded in the fund has been factored into the analysis. Conversely, some funds, whose average (unadjusted) returns do not stand out, may look very attractive once their low risk is factored into their performance.Research limitations/implications – I... |
