Download this Paper Open PDF in Browser

Can Mutual Fund 'Stars' Really Pick Stocks? New Evidence from a Bootstrap Analysis

56 Pages Posted: 28 Nov 2005 Last revised: 17 Oct 2013

Robert Kosowski

Imperial College Business School; CEPR (Centre for Economic Policy Research); University of Oxford, Oxford-Man Institute of Quantitative Finance

Allan G. Timmermann

University of California, San Diego (UCSD) - Department of Economics; Centre for Economic Policy Research (CEPR)

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Halbert L. White, Jr.

University of California, San Diego (UCSD) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2005

Abstract

We apply a new bootstrap statistical technique to examine the performance of the U.S. open-end, domestic-equity mutual fund industry over the 1975 to 2002 period. This bootstrap approach is necessary because the cross-section of mutual fund alphas has a complex, non-normal distribution – due to heterogeneous risk-taking by funds as well as non-normalities in individual fund alpha distributions. Our bootstrap approach reveals findings that differ from many past studies. Specifically, we find that a sizable minority of managers pick stocks well enough to more than cover their costs; moreover, the superior alphas of these managers persist.

Keywords: mutual funds, performance evaluation, bootstrap

JEL Classification: G11

Suggested Citation

Kosowski, Robert and Timmermann, Allan G. and Wermers, Russ and White, Jr., Halbert L., Can Mutual Fund 'Stars' Really Pick Stocks? New Evidence from a Bootstrap Analysis (September 1, 2005). Available at SSRN: https://ssrn.com/abstract=855425 or http://dx.doi.org/10.2139/ssrn.414441

Robert Kosowski

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+442075943294 (Phone)

HOME PAGE: http://www3.imperial.ac.uk/people/r.kosowski

CEPR (Centre for Economic Policy Research) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

HOME PAGE: http://www.cepr.org/

University of Oxford, Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Allan G. Timmermann

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-4860 (Phone)
858-534-7040 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Russell R. Wermers (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

Halbert L. White

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-3502 (Phone)
858-534-7040 (Fax)

HOME PAGE: http://www.econ.ucsd.edu/~mbacci/white/

Paper statistics

Downloads
1,141
Rank
14,384
Abstract Views
5,451