Bootstrap analysis of mutual fund performance

We study bootstrap methods for fund performance evaluation. We first show that two prominent bootstrap tests have biased test sizes in a large cross-section with short time series and lack test power to detect skilled funds when a substantial number of unskilled funds are present. We then develop the theory for a valid bootstrap Hotelling's T -squared test for zero alpha. We apply the proposed bootstrap test in a practical two-step procedure to identify skilled funds. Our empirical analysis finds that skilled funds are more engaged in active management and hold stocks with higher expected anomalous returns. (c) 2022 Elsevier B.V. All rights reserved.