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Judging Fund Managers by the Company They Keep

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  • RANDOLPH B. COHEN
  • JOSHUA D. COVAL
  • LUBOS PÁSTOR

Abstract

We develop a performance evaluation approach in which a fund manager's skill is judged by the extent to which the manager's investment decisions resemble the decisions of managers with distinguished performance records. The proposed performance measures use historical returns and holdings of many funds to evaluate the performance of a single fund. Simulations demonstrate that our measures are particularly useful in ranking managers. In an application that relies on such ranking, our measures reveal strong predictability in the returns of U.S. equity funds. Our measures provide information about future fund returns that is not contained in the standard measures. Copyright 2005 by The American Finance Association.

Suggested Citation

  • Randolph B. Cohen & Joshua D. Coval & Lubos Pástor, 2005. "Judging Fund Managers by the Company They Keep," Journal of Finance, American Finance Association, vol. 60(3), pages 1057-1096, June.
  • Handle: RePEc:bla:jfinan:v:60:y:2005:i:3:p:1057-1096
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    References listed on IDEAS

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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