Can mutual fund stars really pick stocks? New evidence from a bootstrap analysis
We apply a new bootstrap statistical technique to examine the performance of the U.S. openend, domestic-equity mutual fund industry over the 1975 to 2002 period. Specifically, we bootstrap the joint distribution of performance measures (\alphas) across all funds to determine whether managers of high-alpha funds are simply the luckiest in a large field of managers, or whether they possess genuine stockpicking skills. This bootstrap approach is necessary because the cross-section of mutual fund alphas has a complex, non-normal distribution{due to heterogeneous risk-taking by funds as well as non-normalities in individual fund alpha distributions. Our bootstrap approach reveals findings that differ from many past studies. Specifically, we find that a sizable minority of managers really do pick stocks well enough to more than cover their costs. Moreover, our bootstrap indicates that the superior alphas of these managers persist.
Year of publication: |
2005
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Authors: | Kosowski, Robert ; Timmermann, Allan ; Wermers, Russ ; White, Hal |
Institutions: | Institut für Finanzmarktforschung, Wirtschafts- und Sozialwissenschaftliche Fakultät |
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