The Paradox of Skill in Norwegian Mutual Funds

Abstract

This thesis examines Norwegian mutual funds’ performance, and specifically whether that performance is due to luck or skill under the null hypothesis of no true performance. We use an extensive dataset of 107 Norwegian mutual funds free of survivorship bias, over the period 1987-2019. We use the Carhart (1997) four-factor model as our performance model, both on the aggregate and individual level. On the aggregate level, we find no significant evidence for abnormal risk-adjusted returns. Looking at the funds on the individual level, we use a bootstrap approach to distinguish luck from skill. The bootstrap is implemented to evaluate our results’ statistical significance, intricate dependencies in the cross-section, and the non-normal returns. We find no evidence of skilled managers in our top-performing funds. However, we find aclear indication of the lack of skill in our worst-performing funds.