Skill or Luck? The Outperformance of Highly Active Funds

37 Pages Posted: 15 Aug 2014 Last revised: 17 Apr 2015

See all articles by Anna Helen von Reibnitz

Anna Helen von Reibnitz

Australian National University (ANU); Financial Research Network (FIRN)

Date Written: April 17, 2015


We distinguish luck from skill in fund portfolios of differing activeness by applying bootstrap simulations. Bootstrapping is important as heterogeneous risk taking according to the activeness of a fund’s strategies can bias standard significance tests, causing non-normalities in the cross-section of fund returns and residuals. We find that a portfolio comprising the most active funds demonstrates the greatest proportion of managerial skill, as against luck, in producing positive alpha. While isolating investments to highly active funds will not filter out all unskilled managers, it will increase the likelihood of picking managers with the genuine skill to enhance investor wealth.

Keywords: Mutual funds, active management, luck versus skill

JEL Classification: G11, G14, G20, G23

Suggested Citation

von Reibnitz, Anna Helen, Skill or Luck? The Outperformance of Highly Active Funds (April 17, 2015). 27th Australasian Finance and Banking Conference 2014 Paper. Available at SSRN: or

Anna Helen Von Reibnitz (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

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