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INTRODUCTION
Mutual funds have received a vast amount of attention over the last decades. They are investment vehicles for institutional investors and individuals with high or low initial capital which have attracted a lot of interest due to the fact that they are administrated by professional investment managers and provide highly diversified portfolios. Given the large universe of mutual funds, it is sensible to believe that there are funds which show substantially good performance or to assume that some fund managers possess significant ability and particular skills. The evaluation of mutual funds using performance measures is an important issue, since the identification of the superior performing funds is very crucial for the construction of portfolios of mutual funds.
Different methods have been used in the mutual fund literature to evaluate performance. Most studies are based on the estimation of risk factor regression models. Jensen (1968, 1969) used a single-factor capital asset pricing model (CAPM), which assumes that a fund's investment behavior can be approximated by using a single market index. Different indices have been used in the single-factor CAPM; see, for example, Hendricks et al (1993), and Malkiel (1995). However, empirical studies on the cross-sectional variation of stock returns (see, for example, Breeden et al , 1989; Fama and French, 1993, 1996; Chan et al , 1996) have led to the use of multifactor asset pricing models. Some well-known models include the three-factor model of Fama and French (1993), who included two additional factors in the CAPM, the size and book-to-market; these additional factors capture strategies that can generate returns by buying small size stocks and selling big size stocks, and by buying stocks with high book-to-market ratios and selling stocks with low book-to-market ratios. Another important model is the four-factor model of Carhart (1997) who extended the Fama and French model to include a risk factor that captures the momentum effect of Jegadeesh and Titman (1993); according to this effect returns can be generated by strategies which buy the stocks that have performed well in the past and sell the stocks that have performed poorly in the past. There are also studies (see, for example, Brown and Goetzmann, 1995; Elton et al , 1996; Gruber, 1996) that include in their multifactor models a...