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Time-Varying Fund Manager Skill

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  • Marcin Kacperczyk
  • Stijn Van Nieuwerburgh
  • Laura Veldkamp

Abstract

Mutual fund managers can outperform the market by picking stocks or timing the market successfully. Previous work has estimated picking and timing skill, assuming that each manager is endowed with a fixed amount of each and found some evidence of picking skills and little evidence of timing skills among successful managers. This paper estimates skill separately in booms and recessions and finds that the extent to which managers focus on stock picking or market timing fluctuates with the state of the economy. Stock picking is more prevalent in booms, while market timing dominates in recessions. We use this finding to develop a new methodology for detecting managerial skill. The results suggest that some but not all managers have skill. We describe the characteristics of the skilled managers and show that skilled managers significantly outperform the market.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17615.

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Date of creation: Nov 2011
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Publication status: published as Time-Varying Fund Manager Skill, (with Stijn van Nieuwerburgh and Laura Veldkamp), 2014, Journal of Finance 69, forthcoming.
Handle: RePEc:nbr:nberwo:17615

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References

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  1. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2004. "On the Industry Concentration of Actively Managed Equity Mutual Funds," NBER Working Papers 10770, National Bureau of Economic Research, Inc.
  2. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  3. Luboš Pástor & Robert F. Stambaugh, . "Investing in Equity Mutual Funds," CRSP working papers 532, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  4. Jennifer Huang & Clemens Sialm & Hanjiang Zhang, 2009. "Risk Shifting and Mutual Fund Performance," NBER Working Papers 14903, National Bureau of Economic Research, Inc.
  5. Glode, Vincent, 2011. "Why mutual funds "underperform"," Journal of Financial Economics, Elsevier, vol. 99(3), pages 546-559, March.
  6. Marcin Kacperczyk & Amit Seru, 2007. "Fund Manager Use of Public Information: New Evidence on Managerial Skills," Journal of Finance, American Finance Association, vol. 62(2), pages 485-528, 04.
  7. Marcin Kacperczyk & Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Rational Attention Allocation Over the Business Cycle," NBER Working Papers 15450, National Bureau of Economic Research, Inc.
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Cited by:
  1. Angelidis, Timotheos & Giamouridis, Daniel & Tessaromatis, Nikolaos, 2013. "Revisiting mutual fund performance evaluation," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1759-1776.
  2. Fabian Irek & Thorsten Lehnert, 2013. "Do Fund Investors Know that Risk is Sometimes not Priced?," LSF Research Working Paper Series 13-1, Luxembourg School of Finance, University of Luxembourg.
  3. Fabian Irek & Thorsten Lehnert, 2013. "Do Fund Investors Know that Risk is Sometimes not Priced?," CREA Discussion Paper Series 13-1, Center for Research in Economic Analysis, University of Luxembourg.
  4. Ling, Leng & Arias, J.J., 2013. "Mutual fund flows and window-dressing," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 440-449.
  5. Hao Jiang & Michela Verardo, . "Does herding behavior reveal skill? An analysis of mutual fund performance," FMG Discussion Papers dp720, Financial Markets Group.

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