Best Ideas
نویسندگان
چکیده
We examine the performance of stocks that represent managersBest ideas.We nd that the stock that active managers display the most conviction towards ex-ante, outperforms the market, as well as the other stocks in those managersportfolios, by approximately one to four percent per quarter depending on the benchmark employed. The results for managersother high-conviction investments (e.g. top ve stocks) are also strong. The other stocks managers hold do not exhibit signi cant outperformance. This leads us to two conclusions. First, the U.S. stock market does not appear to be e¢ ciently priced, since even the typical active mutual fund manager is able to identify stocks that outperform by economically and statistically large amounts. Second, consistent with the view of Berk and Green (2004), the organization of the money management industry appears to make it optimal for managers to introduce stocks into their portfolio that are not outperformers. We argue that investors would bene t if managers held more concentrated portfolios. JEL classi cation: G11, G23
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