Download pdf: http://adf.ly/Ab8g0

Luck Versus Skill in the Cross Section of Mutual Fund Returns

Eugene F. Fama

University of Chicago - Booth School of Business (Finance Authors)

Kenneth R. French

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

December 14, 2009

Tuck School of Business Working Paper No. 2009-56
Chicago Booth School of Business Research Paper
Journal of Finance, Forthcoming

Abstract:     
The aggregate portfolio of 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 expense ratios, there is evidence of inferior and superior performance (non-zero true alpha) in the extreme tails of the cross section of mutual fund alpha estimates.
Number of Pages in PDF File: 43