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European equity fund managers: luck or skill?!

Author

Listed:
  • Enareta Kurtbegu

    (University of Evry-Val d''Essonne, EPEE and TEPP-CNRS)

  • Juliana Caicedo-llano

    (University of Evry-Val d''Essonne, EPEE, TEPP-CNRS and EONOS Investment Technologies)

Abstract

Seeking persistent abnormal portfolio performance has been a key question for academics and practitioners. The main challenge in the construction of fund-of-funds is the ex-ante selection of "skilled" managers, ex-post outperforming the benchmark. This empirical study focused on European mutual funds, consists in using the False Discovery Rate selecting procedure. The standard tests to identify funds with non-zero alphas do not adequately account for the presence of "luck", while this becomes an important issue when one deals with multiple testing. Different pricing models are used and the performance of constructed fund-of-funds is analyzed in-sample and out-of-sample for different investment strategies.

Suggested Citation

  • Enareta Kurtbegu & Juliana Caicedo-llano, 2014. "European equity fund managers: luck or skill?!," Economics Bulletin, AccessEcon, vol. 34(4), pages 2340-2350.
    • Handle: RePEc:ebl:ecbull:eb-14-00478
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2014/Volume34/EB-14-V34-I4-P213.pdf
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    References listed on IDEAS

    as
    1. Laurent Barras & Olivier Scaillet & Russ Wermers, 2010. "False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas," Journal of Finance, American Finance Association, vol. 65(1), pages 179-216, February.
    2. Michael Wolf & Dan Wunderli, 2009. "Fund-of-funds construction by statistical multiple testing methods," IEW - Working Papers 445, Institute for Empirical Research in Economics - University of Zurich.
    3. 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.
    4. Cuthbertson, Keith & Nitzsche, Dirk & O'Sullivan, Niall, 2008. "UK mutual fund performance: Skill or luck?," Journal of Empirical Finance, Elsevier, vol. 15(4), pages 613-634, September.
    5. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fund-of-Funds; Factor Models; False Discovery Rate; Performance;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • G1 - Financial Economics - - General Financial Markets

    Statistics

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