The Luxembourg School of Finance, the Luxembourg Statistical Society and the Luxembourg Association of Wealth Managers are happy to invite you to this research seminar.
Abstract
We develop a simple approach for estimating the entire
distribution of skill across mutual funds. Our approach is
non-parametric – as such, it avoids the challenge of
correctly specifying the skill distribution. It also allows for a
joint analysis of multiple measures – a key requirement for
examining skill. Our empirical analysis reveals that most
funds are skilled at detecting profitable trades, but unskilled
at resisting capacity constraints.
These two skill dimensions exhibit strong heterogeneity
both within and across fund groups. In addition, they are
strongly correlated. Aggregating them using the value
added reveals that 75% of the funds earn profits for a total
of 7.8 mio. per year on average.
