Do actively managed US mutual funds produce positive alpha?

Huang, Rong; Pilbeam, Keith; Pouliot, William

Abstract

Using more general forms of equilibrium asset pricing models, we reexamine the recent literature on actively managed US Mutual Fund performance over the period 1984-2015. Using the false discovery technique, we show that the existing literature which is based upon unconditional versions of these models have underestimated performance of actively managed US funds because they produce inconsistent estimates of fund alpha coefficients. Our estimations of abnormal returns using conditional models allow the parameters that underlie the equilibrium asset pricing models to change which produces consistent estimates of funds alphas. We find that when returns are measured net of management and trading costs between 2.9% to 8.4% of US actively managed funds provide positive-alpha. This contrasts with existing studies that find no significant percentage of US Mutual Funds produce positive-alpha. We also find that different investment styles have significantly different percentages of positive-alpha funds.

Citation

Huang, R., Pilbeam, K., & Pouliot, W. (2021). Do actively managed US mutual funds produce positive alpha?. Journal of Economic Behavior and Organization, 182, 472-492. https://doi.org/10.1016/j.jebo.2019.03.006

• Journal Article Type: Article
• Acceptance Date: Mar 7, 2019
• Online Publication Date: Apr 26, 2019
• Publication Date: 2021-02
• Deposit Date: Apr 30, 2019
• Publicly Available Date: Oct 27, 2020
• Journal: Journal of Economic Behavior & Organization
• Print ISSN: 0167-2681
• Electronic ISSN: 2328-7616
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 182
• Pages: 472-492
• DOI: https://doi.org/10.1016/j.jebo.2019.03.006
• Keywords: Mutual funds; Capital asset pricing model; CUSUM test; Bootstrap classification
• Public URL: https://nottingham-repository.worktribe.com/output/1893949
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0167268119300757?via%3Dihub
• Contract Date: May 1, 2019