Performance Evaluation Of U.K. Unit Trusts Within The Stochastic Discount Factor Framework


  • Jonathan Fletcher,

  • David N. Forbes

  • Helpful comments were received from Heber Farnsworth.


We examine the performance of U.K. unit trusts between January 1982 and December 1996 within the stochastic discount factor approach across a wide class of models. No one model dominates the others in correctly pricing passive portfolios or detecting superior performance for hypothetical trading strategies. We find no evidence of significant superior performance by the unit trusts for any model of the stochastic discount factor. Also, the charges of the trust have a mixed effect on trust performance.