A meta-analysis of mutual fund performance

Abstract

The purpose of this article is to introduce the statistical technique of meta-analysis of regression results using as our example the Lee and Rahmann (1990) study of the performance of 93 mutual funds. Specifically, we derive and estimate the meta-analysis formulas, explicitly adjusted for correlated regression residuals, which quantify the effect of sampling error on their reported regression results. Our analysis of selectivity reveals some real variation around a mean risk-adjusted excess return of about 1% per year; while our analysis of market timing reveals some real variation around a negative mean value and confirms that the correction for heteroscedasticity does make a difference. An examination of the 80% probability interval for the mean selectivity value indicates that the best mutual funds can deliver substantial risk-adjusted excess returns.