Is Active Management Skilled or Lucky? A New Investigation into Russian Unit Investment Funds Premiums

Successful performance of active mutual funds in the past can be evidence of both skills and luck of mutual fund managers. The difference between these two terms lies in further performance: the skilled manager is able to repeat his results and to continuously outperform the market, while the lucky manager’s fund may start losing in the future. In this paper basing on the bootstrap technique we develop the methodology that allows estimation of stock picking and market timing skills of Russian unit investment funds managers. As a result, among 388 active open-end unit investment funds (currently existent, acquired, inactive, or liquidated) there can be discovered up to 26% (depending on the model) funds that are truly skilled in stock picking and can systemically outperform the market. This result can become a piece of evidence for the rejection of the efficient market hypothesis in its strong and semi-strong forms in the Russian market. At the same time, Russian unit investment funds managers are ones with negative market timing ability that cannot be explained only by bad luck.