Time-varying fund manager skill
The 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.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Grinblatt, Mark & Titman, Sheridan, 1993. "Performance Measurement without Benchmarks: An Examination of Mutual Fund Returns," The Journal of Business, University of Chicago Press, vol. 66(1), pages 47-68, January.
- Graham, John R. & Harvey, Campbell R., 1996.
"Market timing ability and volatility implied in investment newsletters' asset allocation recommendations,"
Journal of Financial Economics,
Elsevier, vol. 42(3), pages 397-421, November.
- John R. Graham & Campbell R. Harvey, 1994. "Market Timing Ability and Volatility Implied in Investment Newletters' Asset Allocation Recommendations," NBER Working Papers 4890, National Bureau of Economic Research, Inc.
- 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.
- Luboš Pástor & Robert F. Stambaugh, "undated".
"Investing in Equity Mutual Funds,"
CRSP working papers
532, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- 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.
- Harry Mamaysky & Matthew Spiegel & Hong Zhang, 2008.
"Estimating the Dynamics of Mutual Fund Alphas and Betas,"
Review of Financial Studies,
Society for Financial Studies, vol. 21(1), pages 233-264, January.
- Matthew Spiegel & Harry Mamaysky & Hong Zhang, 2005. "Estimating the Dynamics of Mutual Fund Alphas and Betas," Yale School of Management Working Papers ysm353, Yale School of Management, revised 01 Apr 2005.
- Glode, Vincent, 2011. "Why mutual funds "underperform"," Journal of Financial Economics, Elsevier, vol. 99(3), pages 546-559, March.
- Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2005.
"On the Industry Concentration of Actively Managed Equity Mutual Funds,"
Journal of Finance,
American Finance Association, vol. 60(4), pages 1983-2011, 08.
- 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.
- Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
- Wayne Ferson & Kenneth Khang, 2002. "Conditional Performance Measurement Using Portfolio Weights: Evidence for Pension Funds," NBER Working Papers 8790, National Bureau of Economic Research, Inc.
- Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-461, June.
- Marcelle Chauvet & Jeremy M. Piger, 2005.
"A comparison of the real-time performance of business cycle dating methods,"
2005-021, Federal Reserve Bank of St. Louis.
- Chauvet, Marcelle & Piger, Jeremy, 2008. "A Comparison of the Real-Time Performance of Business Cycle Dating Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 42-49, January.
When requesting a correction, please mention this item's handle: RePEc:red:sed012:68. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.