Identify Skilled and Unskilled Mutual Funds
55 Pages Posted: 27 Jan 2020
Date Written: January 4, 2020
The previous bootstrap tests for funds with zero alpha have a distorted test size when the sample sizes of some funds are small and might fail to detect skilled and unskilled funds when both kinds coexist. We develop the theory for a valid bootstrap Hotelling's T-squared test to identify a pool of funds with zero alpha and propose two methods to confirm whether the top- (bottom-) ranking funds are skilled (unskilled) compared to the identified zero-alpha pool. An examination of those skilled funds and unskilled funds indicates that their characteristics are dramatically different from many perspectives.
Keywords: Bootstrap, Edgeworth expansion, Hotelling's T-squared test, Mutual fund
JEL Classification: G11;G23; C58
Suggested Citation: Suggested Citation