Luck Versus Skill in the Cross Section of Mutual Fund Returns

Luck Versus Skill in the Cross Section of Mutual Fund Returns

The aggregate portfolio of U.S. equity mutual funds is close to the market portfolio, but the high costs of active management show up intact as lower returns to investors. Bootstrap simulations suggest that few funds produce benchmark adjusted expected returns sufficient to cover their costs. If we add back the costs in expense ratios, there is evidence of inferior and superior performance (non-zero true alpha) in the extreme tails of the cross section of mutual fund alpha estimates.

Eugene F. Fama and Kenneth R. French

The Journal of Finance

October 2010

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By |2018-06-26T12:45:39+00:00January 1st, 2018|Efficiency/Growth, Financial Regulation, Reference|