Bond vs. Equity Mutual Fund Performance Using False Discovery Rate (FDR)

This paper compares actively managed bond vs. equity mutual fund performance using modified False Discovery Rate (q∗) and percent simulated t(α) < Actual t(α). Bond funds are more likely to outperform than equity funds: q∗(%Sim < Act) shows 33.9% (30.0%) of bond funds generate positive t(α) on net excess returns vs. 1.8% (0.0%) for equity funds. q∗ shows percent simulated t(α) < Actual t(α)results are sensitive to Type II error. Bond fund outperformance is associated with long-term holdings, and corporate bond fund excess returns tend to decline with fund size.