In this paper, I used Modigliani and Modigliani's RAP measure to evaluate mutual funds and hedge funds of United States and mutual funds of Korea. In case of mutual funds in the United States, S&P500 Index funds have shown best performance achieving 23.93% in light of Modigliani and Modigliani's RAP measure. And S&P500 Value mutual funds have shown very low yield for the period from 1996 September to 1999 September.
This is because high-tech stocks have skyrocketed while value stocks has gained little. In case of Hedge funds in the United States, unlike to general conjecture, did not beat the benchmark, S&P500 Index, during the above same period. This is mainly due to Asian liquidity crisis, Russia's Moratorium, and Latin American's economic hard times.
The result showed the superiority and efficiency of Modigliani and Modigliani's RAP measure. And it has lots of policy implications for the Korean mutual funds industry. For example, this study found that fully understandable disclosure for naive investors is the stepping stone to a more rational investment environment.