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Long-term negative fund alpha: Is it caused by bad skill or bad luck?

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  • Qiang Bu

    (Pennsylvania State University-Harrisburg)

Abstract

This paper examines the sources of long-term negative fund alpha. We compare the actual loser funds with a control group of bootstrapped loser funds. We find that the returns of the two fund groups are co-integrated, and that they are similar in market risk exposure, alpha consistency, portfolio holdings, and GARCH volatility. The test results show that long-term negative fund alpha occurs due to bad luck rather than to bad skill.

Suggested Citation

  • Qiang Bu, 2018. "Long-term negative fund alpha: Is it caused by bad skill or bad luck?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 32(1), pages 1-16, February.
    • Handle: RePEc:kap:fmktpm:v:32:y:2018:i:1:d:10.1007_s11408-017-0303-2
    DOI: 10.1007/s11408-017-0303-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Long-term negative alpha; Co-integration; Market exposure; Portfolio holdings; GARCH volatility;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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