You have been assigned the task of comparing the investment performance of five different pension fund managers. After gathering 60 months of excess returns (i.e., the returns in excess of the monthly...

You have been assigned the task of comparing the investment performance of five different pension fund managers. After gathering 60 months of excess returns (i.e., the returns in excess of the monthly risk free rate) on each fund as well as the monthly excess returns on the entire stock market, you perform regression of the form:

(R_Fund – RFR)_t =a+b
(R_mkt – RFR)_t + e_t

You have prepared the following summary of the data, with the standard errors for each of the coefficients listed in the parentheses.

1. Which fund had the highest degree of diversification over the sample period? How is diversification measured in statistical framework?

2. Rank these funds" performance according to the Sharpe, Treynor and Jensen measures.

3. According to the CAPM, the intercept of the regressions (i.e., alpha) should be zero. This means that alpha can be used as a measure of the value added by the investment manager. Which funds have statistically outperformed and underperformed the market using a 2-sided, 95 percent confidence interval? (Note: The relevant t-statistic using 60 observations is 2.00.)