Dicing with the Market: Randomized Procedures for Evaluation of Mutual Funds
Department of Statistical Sciences of the University of Padua Working Paper No. 9-2008
19 Pages Posted: 9 Apr 2009
Date Written: April 9, 2009
A statistically correct procedure for evaluating management skill in the mutual fund industry is described. The approach is based on random and semi-random portfolios and is completely data-driven, allowing reference to a specific benchmark or to peer-groups to be avoided. Rather, it produces a new benchmark, which represents the minimum level of performance that skilled management should reach. An application to some Italian equity funds is also given.
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