Behavioral Aspects of Investment Fund's Markets: Are Good Managers Lucky or Skilled?

It is generally accepted that financial markets are efficient in the long run although there may be some deviations in the short run. It is also accepted that a good portfolio manager is the one who beats the market persistently along time, this type of manager could not exist if markets were perfectly efficient. According to this in a pure efficient market we should find that managers know that they cannot beat the market so they would undertake only pure passive management strategies. Assuming a certain degree of inefficiency in the short run, a market may show some managers who try to beat the market by undertaking active strategies. From Fama’s efficient markets theory we can state that these active managers may beat the market occasionally although they will not be able to enhance significantly their performance in the long run. On the other hand, in an inefficient market it would be expected to find a higher level of activity related with the higher probability of beating the market. In this paper we follow two objectives: first, we set a basis to analyse the level of efficiency in an asset investment funds market by measuring performance, strategies activity and it’s persistence for a certain group of funds during the period of study. Second, we analyse individual performance persistence in order to determine the existence of skilled managers. The CAPM model is taken as theoretical background and the use of the Sharpe’s ratio as a suitable performance measure in a limited information environment leads to a group performance measurement proposal. The empirical study takes quarterly data from 1999-2007 period, for the whole population of the Spanish asset investment funds market, provided by the CNMV (Comisión Nacional del Mercado de Valores). This period of study has been chosen to ensure a wide enough range of efficient market observation so it would allow us to set a proper basis to compare with the following period. As a result we develop a model that allows us to measure efficiency in a given asse t mutual funds market, based on the level of strategy’s activity undertaken by managers. We also observe persistence in individual performance for a certain group of funds. Length: 22 pages