60 Pages Posted: 4 Jan 2019 Last revised: 10 Jan 2019
Date Written: January 8, 2019
Investing in M&A targets before they receive offers yields high returns on the announcement day. Ours is the first paper to document targeting ability, which is the ability of fund managers to persistently generate such returns in excess of the returns their benchmarks earn from holding targets. Targeting ability translates one-for-one into mutual fund alpha. Targeting ability is not due to investment bank or management connections, not due to overweighting small stocks, and not due to long-term holdings that happen to become targets. Targeting ability arises from managers holding more targets, investing more capital in targets, and selecting higher-premium targets.
Keywords: Portfolio management, mutual fund performance, stock-picking ability, managerial skill
JEL Classification: G14, G23
Suggested Citation: Suggested Citation