Trading Skills of Mutual Fund Managers: Evidence Based on Daily Transactions

57 Pages Posted: 22 Jul 2020 Last revised: 10 Feb 2022

See all articles by Rene Weh

Rene Weh

University of Augsburg - Department of Finance and Banking

P. Joakim Westerholm

University of Sydney Business School

Marco Wilkens

University of Augsburg

Juan Yao

University of Sydney - Business School - Finance Discipline; Financial Research Network (FIRN)

Date Written: December 9, 2021

Abstract

This paper presents a unique out of sample test that evaluates fund managers’ trading skills. We document strong evidence of positive short term trading performance for both buys and sells lasting up to one month. By establishing a link between a fund’s trade data, holdings, and reported net returns, we demonstrate that trading performance translates almost one to one into fund performance. Furthermore, we find that trading performance differs significantly across funds and is highly persistent in abnormal short term returns. We argue that trading skill is a manager attribute that is also related to fund size and expenses. We rule out price pressure as the reason for the documented short term performance. Instead, liquidity provision makes an important contribution. These results offer new evidence that managers provide value to their clients through above par investment skills.

Keywords: Mutual funds, trading, performance, manager skill

JEL Classification: G11, G23

Suggested Citation

Weh, Rene and Westerholm, P. Joakim and Wilkens, Marco and Yao, Juan, Trading Skills of Mutual Fund Managers: Evidence Based on Daily Transactions (December 9, 2021). Available at SSRN: https://ssrn.com/abstract=3638497 or http://dx.doi.org/10.2139/ssrn.3638497

Rene Weh (Contact Author)

University of Augsburg - Department of Finance and Banking ( email )

Universitaetsstr. 16
Augsburg, Bavaria 86159
Germany

P. Joakim Westerholm

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

Juan Yao

University of Sydney - Business School - Finance Discipline ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 93517650 (Phone)
+61 2 9351 6461 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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