Measuring skill in the mutual fund industry

Measuring Skill in the Mutual Fund Industry∗

Using the dollar-value that a mutual fund adds as the measure of skill, we find that the average mutual fund adds about $2 million per year and that this skill persists for as long as 10 years. We further document that investors recognize this skill and reward it by investing more capital with better funds. Better funds earn higher aggregate fees, and there is a strong positive correlation betw...

The MUTUAL FUND INDUSTRY

Measuring the skill of the fund manager∗

I introduce a conditional measure of skill, the correlation between fund's trades and future news of the stocks traded. Using this measure, I show that the average fund manager in the cross-section of U.S. equity mutual funds has stock picking skill. This skill is mainly driven by manager's ability to predict rm's cashow news. Importantly, this skill has short term persistence, which is not exp...

Mutual Fund Performance: Luck or Skill?

Should individuals include actively managed mutual funds in their investment portfolios? They should if and only if the result of active management is superior performance due to skill. This paper employs a previously ignored statistical technique to detect whether skill drives the superior performance of some mutual funds. This technique, the generalized binomial distribution, models a sequenc...

Market Discipline and Internal Governance in the Mutual Fund Industry∗

This paper develops a continuous-time model in which a portfolio manager is hired by a management company. Based on past portfolio returns, all agents update their beliefs about the manager’s skills. In response, investors can move capital into or out of the mutual fund, the portfolio manager can alter the risk of the portfolio and the management company can replace the manager. We examine the ...