Picking Funds with Confidence
Allan G Timmermann and
No 11896, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We present a new approach to selecting active mutual funds that uses both holdings and return information to eliminate funds with predicted inferior performance through a sequence of pair-wise comparisons. Our methodology determines both the number of skilled funds and their identity; funds identified ex-ante as being superior earn substantially higher risk-adjusted returns than top funds identified by conventional alpha ranking methods. Importantly, we find strong evidence of variation in the breadth of the set of funds identified as superior, as well as fluctuations in the style and industry exposures of such funds over time and across different volatility states
Keywords: equity mutual funds; Fund confidence set; risk-adjusted performance (search for similar items in EconPapers)
JEL-codes: G11 G17 G2 (search for similar items in EconPapers)
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