Abstract

http://ssrn.com/abstract=2038108
 
 

References (36)



 
 

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Measuring Skill in the Mutual Fund Industry


Jonathan Berk


Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jules H. Van Binsbergen


Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

November 4, 2013


Abstract:     
Using the value that a mutual fund extracts from capital markets as the measure of skill, we find that the average mutual fund has used this skill to generate about $2 million per year. We document large cross-sectional differences in skill that persist for as long as 10 years. We further document that investors recognize this skill and reward it by investing more capital with better funds. Better funds earn higher aggregate fees, and there is a strong positive correlation between current compensation and future performance. We also demonstrate why traditional measures such as the gross and net alpha fail to measure managerial skill which explains why past studies that use those measures have failed to find evidence of this skill.

Number of Pages in PDF File: 58

Keywords: Mutual Funds, Skill, Compensation

JEL Classification: G2, J31

working papers series


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Date posted: April 11, 2012 ; Last revised: November 5, 2013

Suggested Citation

Berk, Jonathan and van Binsbergen, Jules H., Measuring Skill in the Mutual Fund Industry (November 4, 2013). Available at SSRN: http://ssrn.com/abstract=2038108 or http://dx.doi.org/10.2139/ssrn.2038108

Contact Information

Jonathan B. Berk
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jules H. Van Binsbergen (Contact Author)
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen
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