Baks, Klaas PieterMetrick, AndrewWachter, Jessica A2023-05-222023-05-222001-01-012016-06-15https://repository.upenn.edu/handle/20.500.14332/34384This paper analyzes mutual-fund performance from an investor's perspective. We study the portfolio-choice problem for a mean-variance investor choosing among a risk-free asset, index funds, and actively managed mutual funds. To solve this problem, we employ a Bayesian method of performance evaluation; a key innovation in our approach is the development of a flexible set of prior beliefs about managerial skill. We then apply our methodology to a sample of 1,437 mutual funds. We find that some extremely skeptical prior beliefs nevertheless lead to economically significant allocations to active managers.This is the peer reviewed version of the following article, which has been published in final form at http://dx.doi.org/10.1111/0022-1082.00319. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.FinanceFinance and Financial ManagementArticle