Skilled Monkey or Unlucky Manager?
When The Wall Street Journal used a monkey to choose stocks to invest in, it failed to launch a more comprehensive experiment based on the same principle. Using a probabilistic approach in a similar way to Roy’s safety-first risk measure, we consider the probability that a randomly managed portfolio will outperform a predefined benchmark and compare it with the probability that a professionally managed fund will outperform the same benchmark. Repeating this over a large number of random portfolios and managed funds while ensuring the comparison is a valid one, we effectively test whether investment management skill truly exists for long-only US equity portfolios or whether the efficiency of markets prohibits any longer-run outperformance. The results show that managed long-only equity portfolios do not show a higher probability of outperforming the index than randomly selected ones.
Vermorken, Maximilian et al. "Skilled Monkey or Unlucky Manager?" Journal of Asset Management 14.5 (2013): 267-277.