Can Mutual Fund 'Stars' Really Pick Stocks? New Evidence from a Bootstrap Analysis

We apply a new bootstrap statistical technique to examine the performance of the U.S. open-end, domestic-equity mutual fund industry over the 1975 to 2002 period. This bootstrap approach is necessary because the cross-section of mutual fund alphas has a complex, non-normal distribution - due to heterogeneous risk-taking by funds as well as non-normalities in individual fund alpha distributions. Our bootstrap approach reveals findings that differ from many past studies. Specifically, we find that a sizable minority of managers pick stocks well enough to more than cover their costs; moreover, the superior alphas of these managers persist