Is It Luck or Skill: Establishing Role of Skill in Mutual Fund Management and Fantasy Sports

Vishal Misra, Devavrat Shah, and Sudarsan V. S. Ranganathan

The emergence of Online Fantasy Sports Platforms (OFSP) has presented a challenge for the regulatory bodies across the globe: do they represent game of skill or game of chance? A game of skill is a game where the outcome is determined mainly by the predominance of mental or physical skill, rather than chance. Gambling or a game of chance is where outcomes are entirely driven by luck and skill has no role to play. In this work, we present a novel data-driven test that helps address this question. In particular, the failure of the test leads to the conclusion that the outcomes are based on the predominance of skill, and not based on luck.

The proposed test is based on a sound statistical hypothesis of chance that we introduce. It is robust against all sorts of biases that might be present in the data. We apply the test to data obtained from two fantasy sports platforms: Dream11 for Cricket and FanDuel for Basketball. In both cases, we conclude that there is overwhelming evidence that the outcomes are driven by the predominance of skill. Indeed, evidence of “survivor bias” can be found in such dataset suggesting the importance of a robust statistical approach presented in this work. We report similar observations in the context of mutual fund performances suggesting that they are being managed by skilful fund managers