Do Mutual Fund Managers Have Asset Management Skills? Evidence from New Measures on Crisis Management and Directional Trading

99 Pages Posted: 10 Sep 2009

See all articles by Andreas G. F. Hoepner

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; European Commission's Platform on Sustainable Finance

Stefan Zeume

University of Illinois at Urbana-Champaign

Date Written: September 8, 2009

Abstract

We develop a directional trading model and a crisis management model to measure fund manager skills more adequately. We test the robustness of both traditional market timing models and new management skill models to changes in their underlying investor utility function and excess return definition. We apply our theoretical findings to an empirical setting in that we test 131 US mutual funds for management skills over the past 24 years. Firstly, we find argumentative evidence that fund managers may add investor value by correctly predicting times of high volatility and financial crises, and adjusting their portfolio’s risk exposure accordingly. Secondly, based on simulated fund returns of perfect market timers, imperfect market timers, and inconsistent market timers, we find return timing models to be relatively unrobust to changes in utility assumptions and robust to changes in the underlying excess return definition. Thirdly, empirically, we find positive market timing skills in maximum capital gains funds and growth funds for our first sub-period (1985-1995). These results are robust to potential misspecification. Likewise, the evidence of positive (negative) directional trading skills that we find for the first (second) sub-period is robust to misspecification. Finally, we find that fund managers reveal positive crisis management skills during the second sub-period (1996-2008).

Keywords: crisis management, directional trading, manager skills, market timing, mutual funds

JEL Classification: G01, G10, G11

Suggested Citation

Hoepner, Andreas G. F. and Zeume, Stefan, Do Mutual Fund Managers Have Asset Management Skills? Evidence from New Measures on Crisis Management and Directional Trading (September 8, 2009). Available at SSRN: https://ssrn.com/abstract=1470497 or http://dx.doi.org/10.2139/ssrn.1470497

Andreas G. F. Hoepner (Contact Author)

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

European Commission's Platform on Sustainable Finance ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Stefan Zeume

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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