Does the choice of fund performance measure matter?

This paper investigates whether investment strategies using rankings based on different portfolio performance measures lead to different future abnormal returns. A set of 13 commonly used risk-adjusted performance measures is applied to a dataset of US equity mutual funds over the period July 1970 to September 2019. The results show some evidence of short-term performance persistence, suggesting that portfolios formed on different performance measures ex-ante can generate abnormal returns ex-post. A strategy of investing in the top performing funds and shorting the poor performing funds provides positive excess returns and five-factor alphas. However, when adjusting for the momentum factor, there is less evidence of abnormal performance. The results also show that overall there is little difference arising from the use of different performance measures, but with one notable exception: the Rachev ratio.