Time-Varying Fund Manager Skill
Marcin T. Kacperczyk
Imperial College London - Accounting, Finance, and Macroeconomics; National Bureau of Economic Research (NBER)
Stijn Van Nieuwerburgh
New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
New York University - Stern School of Business; National Bureau of Economic Research (NBER)
December 5, 2012
Journal of Finance, Forthcoming
We propose a new definition of skill as a general cognitive ability to either pick stocks or time the market at different times. We find evidence for stock picking in booms and for market timing in recessions. Moreover, the same fund managers that pick stocks well in expansions also time the market well in recessions. These fund managers significantly outperform other funds and passive benchmarks. Our results suggest a new measure of managerial ability that gives more weight to a fund’s market timing in recessions and to a fund’s stock picking in booms. The measure displays far more persistence than either market timing or stock picking alone and can predict fund performance.
Number of Pages in PDF File: 60
Keywords: mutual funds, skills, business cycle
JEL Classification: G12, G14, G23
Date posted: November 16, 2011 ; Last revised: December 6, 2012
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