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Measuring Managerial Skill in the Mutual Fund Industry

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  • Jonathan B. Berk
  • Jules H. van Binsbergen

Abstract

Using the dollar-value a mutual fund manager adds as the measure of skill, we find that not only does skill exist (the average mutual fund manager adds about $2 million per year), but this skill is persistent, as far out as 10 years. We further document that investors recognize this skill and reward it by investing more capital with skilled managers. Higher skilled managers are paid more and there is a strong positive correlation between current managerial compensation and future performance.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18184.

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Date of creation: Jun 2012
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Handle: RePEc:nbr:nberwo:18184

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  1. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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  3. Grinblatt, Mark & Titman, Sheridan D, 1989. "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 62(3), pages 393-416, July.
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  6. Kosowski, Robert & Timmermann, Allan & Wermers, Russ & White, Hal, 2005. "Can mutual fund stars really pick stocks? New evidence from a bootstrap analysis," CFR Working Papers, University of Cologne, Centre for Financial Research (CFR) 05-14, University of Cologne, Centre for Financial Research (CFR).
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  8. Baker, Malcolm & Litov, Lubomir & Wachter, Jessica A. & Wurgler, Jeffrey, 2010. "Can Mutual Fund Managers Pick Stocks? Evidence from Their Trades Prior to Earnings Announcements," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 45(05), pages 1111-1131, October.
  9. Martijn Cremers & Antti Petajisto, 2006. "How Active is Your Fund Manager? A New Measure That Predicts Performance," Yale School of Management Working Papers, Yale School of Management amz2370, Yale School of Management, revised 01 May 2009.
  10. Luboš Pástor & Robert F. Stambaugh, . "Mutual Fund Performance and Seemingly Unrelated Assets.”," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 527, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  11. K. J. Martijn Cremers & Antti Petajisto, 2009. "How Active Is Your Fund Manager? A New Measure That Predicts Performance," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 22(9), pages 3329-3365, September.
  12. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, American Finance Association, vol. 23(2), pages 389-416, 05.
  13. Harry Mamaysky & Matthew Spiegel & Hong Zhang, 2008. "Estimating the Dynamics of Mutual Fund Alphas and Betas," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 21(1), pages 233-264, January.
  14. Fama, Eugene F & French, Kenneth R, 1995. " Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 50(1), pages 131-55, March.
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Cited by:
  1. Pástor, Luboš & Stambaugh, Robert F. & Taylor, Lucian, 2014. "Scale and Skill in Active Management," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9854, C.E.P.R. Discussion Papers.
  2. John H. Cochrane, 2013. "Finance: Function Matters, not Size," NBER Working Papers, National Bureau of Economic Research, Inc 18944, National Bureau of Economic Research, Inc.

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