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Skilled monkey or unlucky manager?

Author

Listed:
  • Maximilian Vermorken

    (UCL QASER Lab, University College London)

  • Marc Gendebien
  • Alphons Vermorken
  • Thomas Schröder

Abstract

When The Wall Street Journal used a monkey to choose stocks to invest in, it failed to launch a more comprehensive experiment based on the same principle. Using a probabilistic approach in a similar way to Roy’s safety-first risk measure, we consider the probability that a randomly managed portfolio will outperform a predefined benchmark and compare it with the probability that a professionally managed fund will outperform the same benchmark. Repeating this over a large number of random portfolios and managed funds while ensuring the comparison is a valid one, we effectively test whether investment management skill truly exists for long-only US equity portfolios or whether the efficiency of markets prohibits any longer-run outperformance. The results show that managed long-only equity portfolios do not show a higher probability of outperforming the index than randomly selected ones.

Suggested Citation

  • Maximilian Vermorken & Marc Gendebien & Alphons Vermorken & Thomas Schröder, 2013. "Skilled monkey or unlucky manager?," Journal of Asset Management, Palgrave Macmillan, vol. 14(5), pages 267-277, October.
    • Handle: RePEc:pal:assmgt:v:14:y:2013:i:5:d:10.1057_jam.2013.22
    DOI: 10.1057/jam.2013.22
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    References listed on IDEAS

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    Cited by:

    1. Joana Almeida & Raquel M. Gaspar, 2021. "Accuracy of European Stock Target Prices," JRFM, MDPI, vol. 14(9), pages 1-27, September.

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