Question: A lot of investors have been reading about something called the "new-fund effect." That's the tendency of new funds to outperform their older peers because of any one of a number of factors: better access to initial public offerings, more motivated managers, or better spreads on trades. However, despite the potential growth benefits of new funds, their volatility makes many investors uncomfortable. Consider a sample of 20 newly created mid-cap mutual funds and a sample of 20 newly created small-cap mutual funds randomly selected from all mutual funds that are less than 18 months old. The data are given below.

New Mid-Cap Funds

13.7 7.9 13.6

11.2 14.6 9.5

10.8 11.3 12.0

12.7 13.7 7.9

13.6 11.4 14.6

9.5 10.8 11.3

12.0 12.7

New Small-Cap Funds

15.3 9.8 13.5

8.6 15.2 14.9

11.5 25.2 6.3

12.4 15.3 9.8

13.5 8.6 15.2

14.9 11.5 25.2

6.3 12.4

a) Is there sufficient evidence that there is a difference in the variance of newly created mid-cap vs small-cap mutual funds? Use a level of significance of 10 percent.

b) Just for the fun of it, using the results from part a, test to see whether or not there is a statistically significant difference between the average annualized performances of the mid-cap funds versus the small-cap funds. Do this test at level of significance of 10 percent.