Do actively managed mutual funds beat the market? A randomized procedure using Monte Carlo simulation

Abstract: The aim of the thesis is to examine if the efficient market hypothesis applies to the Swedish mutual fund market, and thereby determine whether actively managed funds in Sweden beat the market or not. In order to do so I constructed a Monte Carlo simulation of the Stockholm stock exchange that produced random portfolios following a set of investment constraints. A series of comparisons between the actual mutual funds and the random portfolios showed that active management did not create any excess returns above what could be explained by luck. No sign of superior stock selecting abilities or timing was found.