The Existence of Skilled Fund Managers: A Study on Actively Managed Mutual Funds in the US Market

Sammanfattning: This paper uses a dataset of 19 689 domestic actively managed mutual funds in the US market during 1980-2020 to find the proportions of skilled- and unskilled funds. The method is based on the false discovery approach applied in a financial setting. We conclude that 58% of our sample are zero-alpha funds, 42% unskilled, and 0% skilled. We also show that, during 1980-2020, the number of skilled funds has decreased to zero, whereas unskilled funds have increased. Our results can be explained by the characteristics of actively managed funds such as high costs and the attempt to pick stocks. Additionally, our results show that the decrease in skilled funds coincides with an increase in the number of funds, suggesting a higher level of market efficiency.