Measuring Economic Rents in the Mutual Fund Industry

38 Pages Posted: 20 Mar 2012

See all articles by Jonathan Berk

Jonathan Berk

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Date Written: March 15, 2012

Abstract

We introduce a new measure of active mutual fund manager skill that is based on the dollar-value a manager adds as opposed to the abnormal return he generates. We find that not only does skill exist (the average mutual fund manager adds over $1.5 million per year), but it is persistent, as far out as 10 years. We further document that investors recognize this skill and reward it by investing more capital with skilled managers. Not only are higher skilled managers paid more, but there is a strong positive correlation between current compensation and future performance. Finally, we find no evidence of a superstar effect - managers are compensated proportionately in the value they add.

Keywords: mutual funds, rents, compensation, performance

Suggested Citation

Berk, Jonathan B. and van Binsbergen, Jules H., Measuring Economic Rents in the Mutual Fund Industry (March 15, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2024593 or http://dx.doi.org/10.2139/ssrn.2024593

Jonathan B. Berk

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

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United States

Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

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