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Can mutual fund stars really pick stocks? New evidence from a bootstrap analysis

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  • Kosowski, Robert
  • Timmermann, Allan
  • Wermers, Russ
  • White, Hal

Abstract

We apply a new bootstrap statistical technique to examine the performance of the U.S. openend, domestic-equity mutual fund industry over the 1975 to 2002 period. Specifically, we bootstrap the joint distribution of performance measures (\alphas) across all funds to determine whether managers of high-alpha funds are simply the luckiest in a large field of managers, or whether they possess genuine stockpicking skills. 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 really do pick stocks well enough to more than cover their costs. Moreover, our bootstrap indicates that the superior alphas of these managers persist. --

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Bibliographic Info

Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 05-14.

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Date of creation: 2005
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Handle: RePEc:zbw:cfrwps:0514

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