Judging Fund Managers by the Company They Keep

48 Pages Posted: 17 Dec 2002

See all articles by Randolph B. Cohen

Randolph B. Cohen

Harvard Business School - Finance Unit

Joshua D. Coval

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Lubos Pastor

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: November 19, 2002

Abstract

We develop a performance evaluation approach in which a fund manager's skill is judged by the extent to which his investment decisions resemble the decisions of managers with distinguished performance records. The proposed performance measures are estimated more precisely than standard measures, because they use historical returns and holdings of many funds to evaluate the performance of a single fund. According to one of our measures, funds with significantly positive ability considerably outnumber funds with significantly negative ability at the end of our sample. Simulations demonstrate that our measures are particularly useful in ranking managers. In an application that relies on such ranking, we find only weak persistence in the performance of U.S. equity funds after accounting for momentum in stock returns.

Suggested Citation

Cohen, Randolph B. and Coval, Joshua D. and Pastor, Lubos, Judging Fund Managers by the Company They Keep (November 19, 2002). CRSP Working Paper No. 545; EFA 2003 Annual Conference Paper No. 884; HBS Finance Working Paper No. 04-023. Available at SSRN: https://ssrn.com/abstract=353620 or http://dx.doi.org/10.2139/ssrn.353620

Randolph B. Cohen

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6674 (Phone)
617-496-6592 (Fax)

Joshua D. Coval

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lubos Pastor (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-4080 (Phone)
773-702-0458 (Fax)

HOME PAGE: http://www.ChicagoGSB.edu/fac/lubos.pastor/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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