Long-term negative fund alpha: Is it caused by bad skill or bad luck?

Qiang Bu ()
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Qiang Bu: Pennsylvania State University-Harrisburg

Financial Markets and Portfolio Management, 2018, vol. 32, issue 1, No 1, 16 pages

Abstract: Abstract This paper examines the sources of long-term negative fund alpha. We compare the actual loser funds with a control group of bootstrapped loser funds. We find that the returns of the two fund groups are co-integrated, and that they are similar in market risk exposure, alpha consistency, portfolio holdings, and GARCH volatility. The test results show that long-term negative fund alpha occurs due to bad luck rather than to bad skill.

Keywords: Long-term negative alpha; Co-integration; Market exposure; Portfolio holdings; GARCH volatility (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s11408-017-0303-2

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