Mutual Fund Performance: Skill or Luck?

Mutual Fund Performance: Luck or Skill?

Should individuals include actively managed mutual funds in their investment portfolios? They should if and only if the result of active management is superior performance due to skill. This paper employs a previously ignored statistical technique to detect whether skill drives the superior performance of some mutual funds. This technique, the generalized binomial distribution, models a sequenc...

The performance of football club managers: skill or luck?

Measuring Skill in the Mutual Fund Industry∗

Using the dollar-value that a mutual fund adds as the measure of skill, we find that the average mutual fund adds about $2 million per year and that this skill persists for as long as 10 years. We further document that investors recognize this skill and reward it by investing more capital with better funds. Better funds earn higher aggregate fees, and there is a strong positive correlation betw...

Evaluating Mutual Fund Performance

We study standard mutual fund performance measures, using simulated funds whose characteristics mimic actual funds. We find that performance measures used in previous mutual fund research have little ability to detect economically large magnitudes ~e.g., three percent per year! of abnormal fund performance, particularly if a fund’s style characteristics differ from those of the value-weighted m...

Internet Appendix to “False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas”

We use the bootstrap procedure proposed by Storey (2002) and Storey, Taylor, and Siegmund (2004) to estimate the proportion of zero-alpha funds in the population, 0. This resampling approach chooses from the data such that an estimate of the Mean Squared Error ( ) of b0 ( ) dened as (b0 ( ) 0) is minimized. First, we compute b0 ( ) using equation (5) of the paper across a range of values ( = 0...