The Sustainability of Investment Decision Making

This paper develops and tests a new multi-attribute, behavioral based measure of mutual fund performance, based at the portfolio decision-making rather than trade level, using the alpha score, hit rate and the win-loss ratio. These measures are then combined to develop a multi-attribute measure of "efficiency"; the author decomposes this into technical, scale, and mix efficiency scores and then separately measure this for overweight and underweight portfolio positions. The author finds that the variations in average technical and mix efficiency scores related to win-loss ratios (hit rates) for relatively overweight (underweight) positions are statistically significant. These findings suggest that the sustainability of investment performance is evidenced from win-to-loss ratios and hit rate in ways that are not exhibited by the alpha performance measure.