Time-varying fund manager skill
AbstractThe literature assessing whether mutual fund managers have skill typically regards skill as an immutable attribute of the manager or the fund. We show that many measures of skill, such as returns, alphas, and measures of stock-picking and market-timing, appear to vary over the business cycle. We argue that skill is a general cognitive ability that is applied to different tasks, such as picking stocks or market timing. Using tools from the rational inattention literature, the theory shows that the relative value of these tasks varies cyclically. It generates indirect predictions for the dispersion and returns of fund portfolios that distinguish this explanation from others and which are supported by the data. In turn, these findings offer useful evidence to support the notion of rational attention allocation.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 68.
Date of creation: 2012
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- Marcin Kacperczyk & Stijn Van Nieuwerburgh & Laura Veldkamp, 2011. "Time-Varying Fund Manager Skill," NBER Working Papers 17615, National Bureau of Economic Research, Inc.
- Kacperczyk, Marcin & van Nieuwerburgh, Stijn & Veldkamp, Laura, 2012. "Time-Varying Fund Manager Skill," CEPR Discussion Papers 9025, C.E.P.R. Discussion Papers.
- G00 - Financial Economics - - General - - - General
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G2 - Financial Economics - - Financial Institutions and Services
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-27 (All new papers)
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