Can Mutual Fund 'Stars' Really Pick Stocks? New Evidence from a Bootstrap Analysis
Imperial College Business School; University of Oxford, Oxford-Man Institute of Quantitative Finance
Allan G. Timmermann
University of California, San Diego (UCSD) - Department of Economics; Centre for Economic Policy Research (CEPR)
University of Maryland - Robert H. Smith School of Business
Halbert L. White, Jr.
University of California, San Diego (UCSD) - Department of Economics
September 1, 2005
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.
Number of Pages in PDF File: 56
Keywords: mutual funds, performance evaluation, bootstrap
JEL Classification: G11working papers series
Date posted: November 28, 2005 ; Last revised: October 17, 2013
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