Active Fundamental Performance
Review of Financial Studies Forthcoming
56 Pages Posted: 14 Aug 2013 Last revised: 4 Oct 2018
Date Written: January 1, 2018
We propose a new measure, active fundamental performance (AFP), to identify skilled mutual fund managers. AFP evaluates fund investment skills conditioned on the release of firms’ fundamental information. For each fund, we examine the covariance between deviations of its portfolio weights from a benchmark portfolio and the underlying stock performance on days when firms publicize fundamental information. Because asset prices on these information days better reflect firm fundamentals, AFP can more effectively identify investment skills. From 1984 to 2014, funds in the top decile of high AFP subsequently outperformed those in the bottom decile by 2% to 3% per year.
Keywords: Mutual Funds, Performance Evaluation, Skill, Earnings Announcement
JEL Classification: G11, G20, G23
Suggested Citation: Suggested Citation