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Unobserved Actions of Mutual Funds

Marcin T. Kacperczyk
New York University - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Clemens Sialm
University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER)

Lu Zheng
University of California, Irvine - Paul Merage School of Business; China Academy of Financial Research (CAFR)

Review of Financial Studies, Forthcoming
Sixteenth Annual Utah Winter Finance Conference
EFA 2005 Moscow Meetings Paper
Sauder School of Business Working Paper

Abstract:
Despite extensive disclosure requirements, mutual fund investors do not observe all actions of fund managers. We estimate the impact of unobserved actions on fund returns using the return gap - the difference between the reported fund return and the return on a portfolio that invests in the previously disclosed fund holdings. We document that unobserved actions of some funds persistently create value, while such actions of other funds destroy value. Our main result shows that the return gap predicts fund performance.

Keywords: Mutual Funds, Performance Evaluation, Trading Strategies

JEL Classifications: G1, G2, G23

Accepted Paper Series

Date posted: February 28, 2005 ; Last revised: September 16, 2009

Suggested Citation

Kacperczyk, Marcin T., Sialm, Clemens and Zheng, Lu, Unobserved Actions of Mutual Funds. Review of Financial Studies, Forthcoming; Sixteenth Annual Utah Winter Finance Conference; EFA 2005 Moscow Meetings Paper; Sauder School of Business Working Paper. Available at SSRN: http://ssrn.com/abstract=676103

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Contact Information

Lu Zheng (Contact Author) University of California, Irvine - Paul Merage School of Business ( email ) Irvine, CA 92697-3125 United States 9498248365 (Phone)
China Academy of Financial Research (CAFR) 1954 Huashan Road Shanghai P.R.China, 200030 China
Marcin T. Kacperczyk New York University - Leonard N. Stern School of Business ( email ) 44 West 4th Street New York, NY 10012 United States
National Bureau of Economic Research (NBER) ( email ) 1050 Massachusetts Avenue Cambridge, MA 02138 United States
Clemens Sialm University of Texas at Austin - McCombs School of Business ( email ) Austin, TX 78712 United States HOME PAGE: http://www.mccombs.utexas.edu/faculty/Clemens.Sialm/
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States