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Picking Funds with Confidence

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  • Timmermann, Allan
  • Lunde, Asger
  • Groenborg, Niels
  • Wermers, Russ

Abstract

We present a new approach to selecting active mutual funds that uses both holdings and return information to eliminate funds with predicted inferior performance through a sequence of pair-wise comparisons. Our methodology determines both the number of skilled funds and their identity; funds identified ex-ante as being superior earn substantially higher risk-adjusted returns than top funds identified by conventional alpha ranking methods. Importantly, we find strong evidence of variation in the breadth of the set of funds identified as superior, as well as fluctuations in the style and industry exposures of such funds over time and across different volatility states

Suggested Citation

  • Timmermann, Allan & Lunde, Asger & Groenborg, Niels & Wermers, Russ, 2017. "Picking Funds with Confidence," CEPR Discussion Papers 11896, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11896
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    Cited by:

    1. Christiansen, Charlotte & Grønborg, Niels S. & Nielsen, Ole L., 2020. "Mutual fund selection for realistically short samples," Journal of Empirical Finance, Elsevier, vol. 55(C), pages 218-240.

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    More about this item

    Keywords

    Fund confidence set; Equity mutual funds; Risk-adjusted performance;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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