Cai, Biqing and Cheng, Tingting and Yan, Cheng (2018) 'Time-varying skills (versus luck) in U.S. active mutual funds and hedge funds.' Journal of Empirical Finance, 49. 81 - 106. ISSN 0927-5398

Text 1s20S0927539818300689main.pdf - Accepted Version Available under License Creative Commons Attribution Non-commercial No Derivatives. Download (1MB)

Abstract

In this paper, we develop a nonparametric methodology for estimating and testing time-varying fund alphas and betas as well as their long-run counterparts (i.e., their time-series averages). Traditional linear factor model arises as a special case without time variation in coefficients. Monte Carlo simulation evidence suggests that our methodology performs well in finite samples. Applying our methodology to U.S. mutual funds and hedge funds, we find most fund alphas decrease with time. Combining our methodology with the bootstrap method which controls for ‘luck’, positive long-run alphas of mutual funds but hedge funds disappear, while negative long-run alphas of both mutual and hedge funds remain. We further check the robustness of our results by altering benchmarks, fund skill indicators and samples.

Item Type:	Article
Uncontrolled Keywords:	Fund performance evaluation, Mutual fund and hedge fund, Skill vs. luck, Time-varying coefficient model
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Essex Business School Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User:	Elements
Date Deposited:	01 Oct 2018 09:32
Last Modified:	29 Mar 2020 01:00
URI:	http://repository.essex.ac.uk/id/eprint/23168

Actions (login required)

View Item