Bootstrap analysis of mutual fund performance
Huang, Haitao; Jiang, Lei; Leng, Xuan; Peng, Liang
JOURNAL OF ECONOMETRICS Year: 2023 Volume: 235.0
DOI: 10.1016/j.jeconom.2022.03.011
Abstract: We show that two prominent bootstrap tests for fund skill have distorted test sizes because many funds have short return records and skewed return residuals, and they lack test power to detect skilled funds when a substantial number of unskilled funds are present. We develop the theory for a valid bootstrap Hotelling’s T -squared test to first identify a zero-alpha fund group and confirm subsequently whether the top(bottom-) ranking funds are skilled (unskilled) relative to the zero-alpha funds. Our empirical analysis finds that skilled funds are more engaged in active management and hold stocks with higher expected anomalous returns.
