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

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  • ROBERT KOSOWSKI
  • ALLAN TIMMERMANN
  • RUSS WERMERS
  • HAL WHITE

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. A bootstrap approach is necessary because the cross section of mutual fund alphas has a complex nonnormal distribution due to heterogeneous risk‐taking by funds as well as nonnormalities in individual fund alpha distributions. Our bootstrap approach uncovers 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.

Suggested Citation

  • Robert Kosowski & Allan Timmermann & Russ Wermers & Hal White, 2006. "Can Mutual Fund “Stars” Really Pick Stocks? New Evidence from a Bootstrap Analysis," Journal of Finance, American Finance Association, vol. 61(6), pages 2551-2595, December.
    • Handle: RePEc:bla:jfinan:v:61:y:2006:i:6:p:2551-2595
    DOI: 10.1111/j.1540-6261.2006.01015.x
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