Luck Versus Skill in the Cross Section of Mutual Fund Returns
Eugene F. Fama
University of Chicago - Finance
Kenneth R. French
Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)
December 14, 2009
Tuck School of Business Working Paper No. 2009-56
Chicago Booth School of Business Research Paper
Journal of Finance, Forthcoming
The aggregate portfolio of U.S. equity mutual funds is close to the market portfolio, but the high costs of active management show up intact as lower returns to investors. Bootstrap simulations suggest that few funds produce benchmark adjusted expected returns sufficient to cover their costs. If we add back the costs in expense ratios, there is evidence of inferior and superior performance (non-zero true alpha) in the extreme tails of the cross section of mutual fund alpha estimates.
Number of Pages in PDF File: 43Accepted Paper Series
Date posted: March 10, 2009 ; Last revised: February 8, 2010
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