MEASURING FUND STRATEGY AND PERFORMANCE IN CHANGING ECONOMIC-CONDITIONS

The use of predetermined variables to represent public information and time-variation has produced new insights about asset pricing models, but the literature on mutual fund performance has not exploited these insights. This paper advocates conditional performance evaluation in w hich the relevant expectations are conditioned on public information v ariables. We modify several classical performance measures to this end and find that the predetermined variables are both statistically and economically significant. Conditioning on public information controls for biases in traditional market timing models and makes the average p erformance of the mutual funds in our sample look better.