Using Random Portfolios to Evaluate the Performance of the Ultimate Stock-Pickers Index

10 Pages Posted: 19 Jun 2014

See all articles by Stefaan Pauwels

Stefaan Pauwels

Ghent University-Universiteit Gent - Department of Financial Economics

Date Written: June 18, 2014

Abstract

Measuring the effective skill of a professional money manager in generating yields has Always been a disputable matter in the fund management literature. This paper evaluates the performance of the Morningstar Ultimate Stock-Pickers index with portfolio opportunity distributions, i.e. the stocks most heavily bought by the top portfolio managers are compared with a number of portfolios that have zero skills. Randomly populated portfolios can provide a statistical test indicating that a particular trading strategy leads to better performances rather than merely being the result of luck. We show no superior stock picking skill of the industry’s brightest minds.

Keywords: performance evaluation, random portfolios, stock picking skills

JEL Classification: G11, G17

Suggested Citation

Pauwels, Stefaan, Using Random Portfolios to Evaluate the Performance of the Ultimate Stock-Pickers Index (June 18, 2014). Available at SSRN: https://ssrn.com/abstract=2456235 or http://dx.doi.org/10.2139/ssrn.2456235

Stefaan Pauwels (Contact Author)

Ghent University-Universiteit Gent - Department of Financial Economics ( email )

Ghent, 9000
Belgium

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