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Model Uncertainty And Mutual Fund Investing, Yee Cheng Loon

Finance Dissertations

Yee Cheng Loon’s dissertation abstract Model uncertainty exists in the mutual fund literature. Researchers employ a variety of models to estimate risk-adjusted return, suggesting a lack of consensus as to which model is correct. Model uncertainty makes it difficult to draw clear inference about mutual fund performance persistence. We explicitly account for model uncertainty by using Bayesian model averaging techniques to estimate a fund’s risk-adjusted return. Our approach produces the Bayesian model averaged (BMA) alpha, which is a weighted combination of alphas from individual models. Using BMA alphas, we find evidence of performance persistence in a large sample of US …