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Forecasting Stock Returns through An Efficient Aggregation of Mutual Fund HoldingsRuss WermersUniversity of Maryland - Robert H. Smith School of Business Tong YaoUniversity of Iowa - Henry B. Tippie College of Business Jane ZhaoPanAgora Asset Management; University of Arizona - Eller College of Management July 1, 2012 Review of Financial Studies, Forthcoming AFA 2007 Chicago Meetings Paper Abstract: 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, G14 working papers seriesDate posted: March 19, 2006 ; Last revised: July 17, 2012Suggested CitationContact Information
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