Judging Fund Managers by the Company They Keep

Abstract

We develop a performance evaluation approach in which a fund manager's skill is judged by the extent to which his investment decisions resemble the decisions of managers with distinguished performance records. The proposed performance measures are estimated more precisely than standard measures, because they use historical returns and holdings of many funds to evaluate the performance of a single fund. According to one of our measures, funds with significantly positive ability considerably outnumber funds with significantly negative ability at the end of our sample. Simulations demonstrate that our measures are particularly useful in ranking managers. In an application that relies on such ranking, we find only weak persistence in the performance of U.S. equity funds after accounting for momentum in stock returns.

Fund Manager Use of Public Information: New Evidence on Managerial Skills

“…Although most of our results involve a setting with fund managers, consistent with the existing literature (e.g., Cohen et al (2005), Wermers (2004)), in our empirical tests we will use data at fund level. In we examine in more detail whether manager‐specific attributes play an important role in determining RPI .…”

“…In this section we present a simple model to detect managerial skills and we formulate the model's testable predictions. Our central premise, like in Cohen, Coval, and Pástor (2005), is that the skill level of an informed investor is captured by the precision of the private signal he receives. This premise differs from that in Grossman and Stiglitz (1980), who assume that any investor can acquire a private signal by paying a constant fee.…”

“…Several studies focus on specifying various sets of information that, in conjunction with existing performance measures, could help identify skillful managers. See, Grinblatt and Titman (1989) and Chen and Knez (1996) for earlier studies; more recent ones include Ferson and Khang (2002), Cohen, Coval, and Pástor (2005), and Kacperczyk, Sialm, and Zheng (2005).…”

The People in Your Neighborhood: Social Interactions and Mutual Fund Portfolios

“…The table shows that, when we allocate stocks into portfolios based on common holdings, the neighbor portfolios perform no better or worse than the nonneighbor portfolios in our sample. While these results suggest that managers do not have an information advantage in shared portfolio holdings, many studies argue that holdings are a very noisy measure of managerial information: trades reflect a stronger conviction than does passively holding a stock (Cohen, Coval, and Pástor ()). Therefore, we next turn to common trades and examine whether these are informative.…”

Mandatory Portfolio Disclosure, Stock Liquidity, and Mutual Fund Performance

“…Our paper is motivated by three strands of literature. First, a large number of papers show that mutual funds’ disclosed portfolios contain valuable information for investors (e.g., Grinblatt and Titman (, ), Grinblatt, Titman, and Wermers (), Daniel et al (), Wermers (, ), Chen, Jegadeesh, and Wermers (), Cohen, Coval, and Pástor (), Kacperczyk, Sialm, and Zheng (, ), Alexander, Cici, and Gibson (), Jiang, Yao, and Yu (), Kacperczyk and Seru (), Cremers and Petajisto (), Baker et al (), Ciccotello, Greene, and Rakowski (), Da, Gao, and Jagannathan (), Wermers, Yao, and Zhao (), and Huang and Kale ()). Therefore, any change in the portfolio disclosure requirement should affect both the underlying asset markets and individual mutual funds.…”