EconStor >
Universität zu Köln >
Centre for Financial Research (CFR), Universität Köln >
CFR Working Papers, Centre for Financial Research (CFR), Universität Köln >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/57735
  
Title:False discoveries in mutual fund performance: Measuring luck in estimated alphas PDF Logo
Authors:Barras, Laurent
Scaillet, Olivier
Wermers, Russ
Issue Date:2009
Series/Report no.:CFR Working Paper 06-02
Abstract: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.
Subjects:Mutual Fund Performance
Multiple-Hypothesis Test
Luck
False Discovery Rate
JEL:G11
G23
C12
Document Type:Working Paper
Appears in Collections:CFR Working Papers, Centre for Financial Research (CFR), Universität Köln

Files in This Item:
File Description SizeFormat
700634827.pdf619.26 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/57735

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.