Stock Selection Skill, Manager Flexibility, and Performance: Evidence from Unit Investment Trusts

40 Pages Posted: 20 May 2015

See all articles by George Comer

George Comer

Georgetown University - Department of Finance

Javier Rodriguez

University of Puerto Rico; University of Puerto Rico - Escuela Graduada de Administración de Empresas (EGAE)

Date Written: May 19, 2015

Abstract

Unlike mutual funds, unit investment trusts invest in a fixed portfolio of stocks for a predetermined period of time and hold limited cash positions. Thus, UITs provide an ideal sample to measure stock selection skill. We examine a sample of 1487 UITs over the period 2004 to 2013. We find that UITs generate significant negative alphas indicating poor stock selection skills. We compare the UITs to actively managed mutual funds characterized by high turnover ratios and high cash holdings. The UITs significantly underperform both groups of mutual funds suggesting that restricting flexibility and maintaining full investment in the market does not result in better risk adjusted performance.

Keywords: unit investment trust, portfolio evaluation, mutual funds

JEL Classification: G10, G11, G19

Suggested Citation

Comer, George and Rodriguez, Javier, Stock Selection Skill, Manager Flexibility, and Performance: Evidence from Unit Investment Trusts (May 19, 2015). Available at SSRN: https://ssrn.com/abstract=2608196 or http://dx.doi.org/10.2139/ssrn.2608196

George Comer (Contact Author)

Georgetown University - Department of Finance ( email )

585 Hariri Building
Georgetown University
Washington, DC 20057
United States
202-687-0676 (Phone)

Javier Rodriguez

University of Puerto Rico ( email )

Río Piedras
Puerto Rico

University of Puerto Rico - Escuela Graduada de Administración de Empresas (EGAE) ( email )

San Juan, 00918
Puerto Rico

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