Bootstrap Analysis of Mutual Fund Performance
70 Pages Posted: 27 Jan 2020 Last revised: 22 Apr 2022
Date Written: August 28, 2020
Abstract
We study bootstrap methods for fund performance evaluation. We first show that two prominent bootstrap tests have distorted test sizes in a large cross-section with short time series and lack test power to detect skilled funds when a substantial number of unskilled funds are present. We then develop the theory for a valid bootstrap Hotelling’s T -squared test for zero alpha. We further apply the proposed bootstrap test in a practical two-step procedure to identify skilled funds. Our empirical analysis finds that skilled funds are more engaged in active management and hold stocks with higher expected anomalous returns.
Keywords: Bootstrap, Edgeworth expansion, Hotelling’s T-squared test, Mutual fund performance
JEL Classification: G11;G23; C58
Suggested Citation: Suggested Citation