Luck Bias and Skill Performance of Individual Mutual Funds

57 Pages Posted: 10 Dec 2013 Last revised: 19 Jun 2017

Martin Rohleder

University of Augsburg

Marco Wilkens

University of Augsburg

Date Written: June 18, 7

Abstract

We present an approach to estimating luck and skill of individual funds. While finding no relevant luck bias on the market level, we report that the standard alphas of many funds are significantly biased. We discover differences in rank and changes in the shape of the alpha distribution which we correct with our measure. Moreover, skill alpha predicts future performance better than standard alpha, generating a significant “skill premium” up to 0.62% p.a. The approach is consistent with and adds to other recent developments in fund research regarding time-variation of skill, individual manager skill, and the skill-activity relation.

Keywords: Mutual fund performance, luck versus skill, reverse survivorship bias, survivorship bias, performance persistence, individual fund managers, management activity

JEL Classification: G11, G12

Suggested Citation

Rohleder, Martin and Wilkens, Marco, Luck Bias and Skill Performance of Individual Mutual Funds (June 18, 7). Available at SSRN: https://ssrn.com/abstract=2365225 or http://dx.doi.org/10.2139/ssrn.2365225

Martin Rohleder (Contact Author)

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4120 (Phone)

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

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