Fund-of-Funds Construction by Statistical MultipleTesting Methods

Fund-of-funds (FoF) managers face the task of selecting a (relatively) small number ofhedge funds from a large universe of candidate funds. We analyse whether such a selectioncan be successfully achieved by looking at the track records of the available funds alone,using advanced statistical techniques. In particular, at a given point in time, we determinewhich funds significantly outperform a given benchmark while, crucially, accouting forthe fact that a large number of funds are examined at the same time. This is achievedby employing so-called multiple testing methods.[...]