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Luck versus Skill in the Cross‐Section of Mutual Fund Returns
Author(s) -
FAMA EUGENE F.,
FRENCH KENNETH R.
Publication year - 2010
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2010.01598.x
Subject(s) - mutual fund , portfolio , equity (law) , closed end fund , business , index fund , open end fund , fund of funds , target date fund , economics , financial economics , monetary economics , luck , income fund , finance , fund administration , econometrics , institutional investor , corporate governance , philosophy , theology , political science , market liquidity , law
The aggregate portfolio of actively managed 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 fund expense ratios, there is evidence of inferior and superior performance (nonzero true α ) in the extreme tails of the cross‐section of mutual fund α estimates.