BARRAS, LAURENT; SCAILLET, OLIVIER; WERMERS, RUSS - In: Journal of Finance 65 (2010) 1, pp. 179-216
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...