False discoveries in mutual fund performance: Measuring luck in estimated alphas

Arbeitspapier

This paper develops a simple technique that controls for false discoveries, or mutual funds that exhibit significant alphas by luck alone. Our approach precisely separates funds into (1) unskilled, (2) zero-alpha, and (3) skilled funds, even with dependencies in cross-fund estimated alphas. We find that 75% of funds exhibit a zero alpha (net of expenses), consistent with the Berk and Green (2004) equilibrium. Further, we find a significant proportion of skilled (positive alpha) funds prior to 1996, but almost none by 2006. We also show that controlling for false discoveries substantially improves the ability to find funds with persistent performance.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CFR Working Paper ; No. 06-02

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Portfolio Choice; Investment Decisions ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Hypothesis Testing: General
• Thema: Mutual Fund Performance ; Multiple-Hypothesis Test ; Luck ; False Discovery Rate

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Barras, Laurent ; Scaillet, Olivier ; Wermers, Russ
• Ereignis: Veröffentlichung
• (wer): University of Cologne, Centre for Financial Research (CFR)
• (wo): Cologne
• (wann): 2009

Weitere Informationen

• Handle: http://hdl.handle.net/10419/57735
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ