Download this Paper Open PDF in Browser

Measuring Skill in the Mutual Fund Industry

44 Pages Posted: 11 Apr 2012 Last revised: 5 Sep 2014

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)

Multiple version iconThere are 2 versions of this paper

Date Written: August 14, 2014

Abstract

Using the value that a mutual fund extracts from capital markets as the measure of skill, we find that the average mutual fund has used this skill to generate about $3.2 million per year. We document large cross-sectional differences in skill that persist for as long as 10 years. We further document that investors recognize this skill and reward it by investing more capital with better funds. Better funds earn higher aggregate fees, and there is a strong positive correlation between current compensation and future performance. The cross-sectional distribution of managerial skill is predominantly reflected in the cross-sectional distribution of fund size rather than gross alpha.

Keywords: Mutual Funds, Skill, Compensation

JEL Classification: G2, J31

Suggested Citation

Berk, Jonathan and van Binsbergen, Jules H., Measuring Skill in the Mutual Fund Industry (August 14, 2014). Available at SSRN: https://ssrn.com/abstract=2038108 or http://dx.doi.org/10.2139/ssrn.2038108

Jonathan B. Berk

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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

Paper statistics

Downloads
3,220
Rank
2,393
Abstract Views
11,568