Financial Markets and Portfolio Management

, Volume 32, Issue 1, pp 1–16 | Cite as

Long-term negative fund alpha: Is it caused by bad skill or bad luck?

  • Qiang BuEmail author


This paper examines the sources of long-term negative fund alpha. We compare the actual loser funds with a control group of bootstrapped loser funds. We find that the returns of the two fund groups are co-integrated, and that they are similar in market risk exposure, alpha consistency, portfolio holdings, and GARCH volatility. The test results show that long-term negative fund alpha occurs due to bad luck rather than to bad skill.


Long-term negative alpha Co-integration Market exposure Portfolio holdings GARCH volatility 

JEL Classification

G11 G14 



We are grateful for the valuable comments from two anonymous referees. In addition, we thank the editor for his helpful suggestions.


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Copyright information

© Swiss Society for Financial Market Research 2018

Authors and Affiliations

  1. 1.School of Business AdministrationPennsylvania State University-HarrisburgMiddletownUSA

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