Picking funds with confidence |
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| Authors: | Niels S Grønborg Asger Lunde Allan Timmermann Russ Wermers |
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| Institution: | 1. Department of Economics and Business Economics, Aarhus University, Fuglesangsallé 4, Aarhus V. 8210, Denmark;2. Danish Finance Institute, Solbjerg Plads 3 (A4.03), Frederiksberg 2000, Denmark;3. Rady School of Management, University of California San Diego, La Jolla, CA 92093-0553, USA;4. CREATES, Aarhus University, Fuglesangsallé 4, Aarhus V. 8210, Denmark;5. Robert H. Smith School of Business, University of Maryland, College Park, MD 20742-1815, USA;1. Harvard Business School, United States;2. Princeton University, United States;1. Haas School of Business, UC Berkeley and NBER, 545 Student Services Building, Berkeley, CA 94720-1900, USA;2. Anderson School of Management, UCLA and NBER, 110 Westwood Plaza, Los Angeles, CA 90095, USA;1. Kenan-Flagler Business School, UNC Chapel Hill, United States;2. Darden Business School, University of Virginia, United States;3. Burgiss, United States;4. Saïd Business School, University of Oxford, United Kingdom;5. Booth School of Business, University Chicago and NBER, United States;6. Fuqua School of Business, Duke University and NBER, United States;1. Oslo Metropolitan University, Oslo Business School, Pilestredet 46, Oslo 0130, Norway;2. The Arctic University of Norway, Hansine Hansens veg 18, Tromsø N-9019, Norway;3. Department of Banking and Finance, Monash University, 900 Dandenong Rd., Caulfield East VIC 3145, Australia |
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| Abstract: | We present a new approach to selecting actively managed mutual funds that uses both portfolio holdings and fund return information to eliminate funds with predicted inferior performance through a sequence of pairwise fund comparisons. Our methodology determines both the number of skilled funds and their identities, and locates funds with substantially higher risk-adjusted returns than those identified by conventional alpha-ranking methods. We find strong evidence of time-series variation in both the number of funds identified as superior using our approach, as well as in their performance across different economic states. |
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