Mutual Funds’ Conditional Performance Free of Data Snooping Bias

107 Pages Posted: 11 Jan 2021 Last revised: 15 Feb 2024

See all articles by Po-Hsuan Hsu

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance; National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Ioannis Kyriakou

Bayes Business School (formerly Cass), City, University of London

Tren Ma

Nottingham University Business School

Georgios Sermpinis

University of Glasgow

Date Written: November 25, 2020

Abstract

We introduce a test to assess mutual funds’ “conditional” performance that is based on updated information and corrects data snooping bias. Our method, named the functional False Discovery Rate “plus” (fFDR+), incorporates fund characteristics in estimating fund performance free of data snooping bias. Simulations suggest that the fFDR+ controls well the ratio of false discoveries and gains considerable power over prior methods that do not account for extra information. Portfolios of funds selected by the fFDR+ outperform other tests not accounting for information updating, highlighting the importance of evaluating mutual funds from a conditional perspective.

Keywords: Multiple testing, Functional false discovery rate, Informative covariates, Mutual funds, Alphas

JEL Classification: C11, C12, G23

Suggested Citation

Hsu, Po-Hsuan and Kyriakou, Ioannis and Ma, Tren and Sermpinis, Georgios, Mutual Funds’ Conditional Performance Free of Data Snooping Bias (November 25, 2020). Available at SSRN: https://ssrn.com/abstract=3737456 or http://dx.doi.org/10.2139/ssrn.3737456

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Ioannis Kyriakou

Bayes Business School (formerly Cass), City, University of London ( email )

Faculty of Actuarial Science & Insurance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 (0)20 7040 8738 (Phone)
+44 (0)20 7040 8881 (Fax)

HOME PAGE: http://www.bayes.city.ac.uk/experts/I.Kyriakou

Tren Ma (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Georgios Sermpinis

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

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