Dirk Nitzsche

Research

My research centers on issues in applied financial economics, such as testing the efficiency of financial markets and predicting asset returns.

My current research focuses on the performance of institutional investors, such as unit trusts, pension funds and hedge funds. Key questions here are whether fund performance can be explained by 'skill' or just 'luck'. Some funds which seem to be successful (e.g. statistical significant Jensen's alpha) might only be lucky and their good performance can be explained by random sampling variation in returns. A second questions of interest is whether there is persistence in fund performance : Are funds with good past returns going to remain successful in the future ? And 'bad funds' are they improving ?

Discussion Papers :

Cuthbertson, K., Nitzsche, D. and O'Sullivan, N. (2006) 'Mutual Fund Performance : Skill or Luck ?'

Appendix : Mutual Fund Performance : Skill or Luck ?

Abstract :
Using a comprehensive data set on (surviving and non-surviving) UK equity mutual funds (April 1975 – December 2002), we use a bootstrap methodology to distinguish between ‘skill’ and ‘luck’ for individual funds. This methodology allows for non-normality in the idiosyncratic risks of the funds – a major issue when considering those funds which appear to be either very good or very bad performers, since these are the funds which investors are primarily interested in identifying. Our study points to the existence of genuine stock picking ability among a relatively small number of top performing UK equity mutual funds (i.e. performance which is not solely due to good luck). At the negative end of the performance scale, our analysis strongly rejects the hypothesis that most poor performing funds are merely unlucky. Most of these funds demonstrate ‘bad skill’. Recursive estimation and Kalman ‘smoothed’ coefficients indicate temporal stability in the performance alpha’s of winner and loser portfolios.

Executive Summary of Cuthbertson, K., Nitzsche, D. and O'Sullivan, N. (2005) 'Mutual Fund Performance : Skill or Luck ?'

Selected Journal Articles :

Hyde, S., Cuthbertson, K. and Nitzsche, D. (2005) 'Resuscitating the C-CAPM : Empirical Evidence from France and Germany', International Journal of Finance and Economics, Vol. 10, No. 4, pp. 337-357

Cuthbertson, K. and Nitzsche, D. (2003) 'Long Rates, Risk Premia and the Over-reaction Hypothesis', Economic Modelling, Vol. 20, pp. 417-435

Cuthbertson, K., Hayes, S. and Nitzsche, D. (2000) 'Are German Money Market Rates Well Behaved ?', Journal of Economic Dynamics and Control, Vol. 24, pp. 347-360

Cuthbertson, K., Hayes, S. and Nitzsche, D. (1999) 'Market Segmentation and Stock Price Behaviour', Oxford Bulletin of Economics and Statistics, Vol. 61, No. 2, pp. 217-235.

Cuthbertson, K., Hayes, S. and Nitzsche, D. (1999) 'Expalining Movements in UK Stock Prices', Quarterly Review of Economics and Finance, Vol. 39, No. 1, pp. 1-19.

Cuthbertson, K., Hayes, S. and Nitzsche, D. (1998) 'Interest Rates in Germany and the UK : Cointegration and Error Correction Models', Manchester School, Vol. 66, No. 1, pp. 27-43.

Cuthbertson, K., Hayes, S. and Nitzsche, D. (1997) 'The Behaviour of UK Stock Prices and returns : Is the Market Efficient ?', Economic Journal, Vol. 107, No. 443, pp. 986-1008

Cuthbertson, K., Hayes, S. and Nitzsche, D. (1996) 'The Behaviour of Certificate of Deposit Rates in the UK', Oxford Economic Papers, Vol. 48, pp. 397-414

Site map