Barras, Laurent; Scaillet, Olivier; Wermers, Russ - 2009 - First version, September 2005, This version, April 2009
This paper develops a simple technique that controls for "false discoveries", or mutual funds that exhibit significant alphas by luck alone. Our approach precisely separates funds into (1) unskilled, (2) zero-alpha, and (3) skilled funds, even with dependencies in cross-fund estimated alphas. We...
