Selectivity, Style, Sentiment and Skill in Mutual Fund Trades
Gary S. Monroe
University of New South Wales (UNSW) - Australian School of Business
August 20, 2010
23rd Australasian Finance and Banking Conference 2010 Paper
Fund managers can only exhibit selectivity through purchasing (selling) stocks that appreciate (depreciate) more frequently than expected from random occurrence, if stocks are incorrectly priced. We develop a method that can statistically identify fund managers that exhibit net, buy, and sell selectivity in their trades, as well as distinguish manager skill from fortuitous stock selection. Stock investor sentiment betas are calculated from the recently developed investor sentiment index, and used to indicate stock mispricing. We find that superior stock selection is concentrated in funds that hold high sentiment beta stocks; the major constituent of funds with the aggressive growth objective.
Number of Pages in PDF File: 27
Keywords: Mutual fund, selectivity, investment style, investor sentiment, persistence
JEL Classification: G2, G11, G14, G23
Date posted: August 24, 2010
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