Bootstrap Analysis of Mutual Fund Performance

70 Pages Posted: 27 Jan 2020 Last revised: 22 Apr 2022

See all articles by Haitao Huang

Haitao Huang

Nankai University - School of Finance

Lei Jiang

Tsinghua University

Xuan Leng

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Liang Peng

Georgia State University - Risk Management & Insurance Department

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

Huang, Haitao and Jiang, Lei and Leng, Xuan and Peng, Liang, Bootstrap Analysis of Mutual Fund Performance (August 28, 2020). Journal of Econometrics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3513979 or http://dx.doi.org/10.2139/ssrn.3513979

Haitao Huang

Nankai University - School of Finance ( email )

38 Tongyan Rd, Jinnan District
Tianjin, Tianjin 300350
China

Lei Jiang (Contact Author)

Tsinghua University ( email )

Beijing, 100084
China

Xuan Leng

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

Liang Peng

Georgia State University - Risk Management & Insurance Department

P.O. Box 4036
Atlanta, GA 30302-4036
United States

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