To obtain the maximum benefits from diversification, financial theory suggests that investors should invest internationally because of the larger potential for risk reduction stemming from the lower correlation exisiting between assets of different countries. The question that we raise in this...

Standard tests designed to identify mutual funds with non-zero alphas are problematic, in that they do not adequately account for the presence of lucky funds. Lucky funds have significant estimated alphas, while their true alphas are equal to zero. To address this issue, this paper quantifies...