Judging Fund Managers by the Company They Keep
Randolph B. Cohen
Harvard Business School - Finance Unit
Joshua D. Coval
Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)
University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
CEPR Discussion Paper No. 3717
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 US equity funds after accounting for momentum in stock returns.
Number of Pages in PDF File: 50
Keywords: Mutual funds, performance evaluation, persistence
JEL Classification: G10working papers series
Date posted: February 21, 2003
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