Skilled monkey or unlucky manager?

Maximilian Vermorken (), Marc Gendebien, Alphons Vermorken and Thomas Schröder
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Maximilian Vermorken: UCL QASER Lab, University College London

Journal of Asset Management, 2013, vol. 14, issue 5, No 1, 267-277

Abstract: 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.

Keywords: portfolio management; market efficiency; manager selection; investment management; performance measurement; stock markets (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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DOI: 10.1057/jam.2013.22

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