Forecasting Stock Returns through An Efficient Aggregation of Mutual Fund Holdings
University of Maryland - Robert H. Smith School of Business
University of Iowa - Henry B. Tippie College of Business
PanAgora Asset Management; University of Arizona - Eller College of Management
July 1, 2012
Review of Financial Studies, Forthcoming
AFA 2007 Chicago Meetings Paper
We develop a stock return-predictive measure based on an efficient aggregation of the portfolio holdings of all actively managed U.S. domestic equity mutual funds, and use this model to study the source of fund managers' stock-selection abilities. This "generalized-inverse alpha" (GIA) approach reveals differences in the ability of managers to predict firms' future earnings from fundamental research. Notably, the GIA's return-forecasting power is not subsumed by publicly available quantitative predictors, such as momentum, value, and earnings quality, nor is it subsumed by methods shown in past research to forecast stock returns using fund holdings or trades.
Number of Pages in PDF File: 50
Keywords: mutual funds, performance persistence, portfolio disclosure, stock selection
JEL Classification: G12, G14working papers series
Date posted: March 19, 2006 ; Last revised: July 17, 2012
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