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Can Mutual Fund 'Stars' Really Pick Stocks? New Evidence from a Bootstrap AnalysisRobert KosowskiImperial College Business School; University of Oxford, Oxford-Man Institute of Quantitative Finance Allan G. TimmermannUniversity of California, San Diego (UCSD) - Department of Economics; Centre for Economic Policy Research (CEPR) Russ WermersUniversity of Maryland - Robert H. Smith School of Business Halbert L. White, Jr.University of California, San Diego (UCSD) - Department of Economics December 1, 2006 Journal of Finance, Vol. 61, No. 6, December 2006 Abstract: We apply a new bootstrap statistical technique to examine the performance of the U.S. open-end, domestic-equity mutual fund industry over the 1975 to 2002 period. This bootstrap approach is necessary because the cross-section of mutual fund alphas has a complex, non-normal distribution - due to heterogeneous risk-taking by funds as well as non-normalities in individual fund alpha distributions. Our bootstrap approach reveals findings that differ from many past studies. Specifically, we find that a sizable minority of managers pick stocks well enough to more than cover their costs; moreover, the superior alphas of these managers persist.
Keywords: mutual funds, performance evaluation, bootstrap JEL Classification: G11 Accepted Paper SeriesDate posted: December 19, 2011Suggested CitationContact Information
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