Picking Funds with Confidence

61 Pages Posted: 16 Mar 2017

See all articles by Niels Groenborg

Niels Groenborg

School of Economics and Business Economics, Aarhus University; CREATES; Danish Finance Institute

Asger Lunde

Aarhus University - School of Economics and Management; CREATES

Allan Timmermann

UCSD ; Centre for Economic Policy Research (CEPR)

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Date Written: March 2017

Abstract

We present a new approach to selecting active mutual funds that uses both holdings and return information to eliminate funds with predicted inferior performance through a sequence of pair-wise comparisons. Our methodology determines both the number of skilled funds and their identity; funds identified ex-ante as being superior earn substantially higher risk-adjusted returns than top funds identified by conventional alpha ranking methods. Importantly, we find strong evidence of variation in the breadth of the set of funds identified as superior, as well as fluctuations in the style and industry exposures of such funds over time and across different volatility states.

Keywords: equity mutual funds, Fund confidence set, risk-adjusted performance

JEL Classification: G11, G17, G2

Suggested Citation

Groenborg, Niels and Lunde, Asger and Timmermann, Allan and Wermers, Russell R., Picking Funds with Confidence (March 2017). CEPR Discussion Paper No. DP11896. Available at SSRN: https://ssrn.com/abstract=2934208

Niels Groenborg (Contact Author)

School of Economics and Business Economics, Aarhus University ( email )

Fuglesangs Allé 4
DK-8210 Aarhus V, 8210
Denmark

CREATES ( email )

School of Economics and Management
Fuglesangs Allé 4
DK-8210 Aarhus V
Denmark

Danish Finance Institute ( email )

Asger Lunde

Aarhus University - School of Economics and Management ( email )

Aarhus
Denmark

CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Allan Timmermann

UCSD ( email )

9500 Gilman Drive
La Jolla, CA 92093-0553
United States
858-534-0894 (Phone)

HOME PAGE: http://rady.ucsd.edu/people/faculty/timmermann/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Russell R. Wermers

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
414
PlumX Metrics