Bootstrap Analysis of Mutual Fund Performance
81 Pages Posted: 27 Jan 2020 Last revised: 13 May 2021
Date Written: August 28, 2020
We show that two prominent bootstrap tests for fund performance evaluation have distorted test sizes and lack test power to detect skilled funds when a substantial number of unskilled funds are present. We develop the theory for a valid bootstrap Hotelling’s T-squared test allowing for serial correlations and cross-sectional dependence in fund residuals. Applying the new bootstrap test in a sequential testing procedure, 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