Origins of Mutual Fund Skill: Market versus Accounting Based Asset Pricing Anomalies

70 Pages Posted: 24 Jan 2021 Last revised: 15 Nov 2021

See all articles by Charlotte Christiansen

Charlotte Christiansen

Aarhus University - CREATES

Ran Xing

Stockholm University - Stockholm Business School; Aarhus University; Swedish House of Finance

Yue Xu

Aarhus University

Date Written: December 3, 2020

Abstract

This paper investigates the source of active U.S. equity mutual funds’ value added using 234 public asset pricing anomalies. We find that mutual funds on average lose substantial value through their high exposure to the short legs of accounting anomalies (e.g. investment, profitability, accrual). This high exposure is largely because of the high correlation between the short legs of accounting anomalies and the long legs of anomalies based on market information (e.g. momentum, liquidity risk, seasonality). Funds do not manage to keep a low exposure to the former while profiting from a high exposure to the latter. Further evidence suggests that the negative exposure to accounting anomalies is not due to fund flows or the career concerns of fund managers.

Keywords: Mutual funds; Anomalies; Value added; Public information; Investment decisions

JEL Classification: G11; G14; G23

Suggested Citation

Christiansen, Charlotte and Xing, Ran and Xu, Yue, Origins of Mutual Fund Skill: Market versus Accounting Based Asset Pricing Anomalies (December 3, 2020). Available at SSRN: https://ssrn.com/abstract=3742096 or http://dx.doi.org/10.2139/ssrn.3742096

Charlotte Christiansen

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus V, DK 8210
Denmark

Ran Xing

Stockholm University - Stockholm Business School ( email )

Sweden

Aarhus University ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Yue Xu (Contact Author)

Aarhus University ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark
+4550234209 (Phone)

HOME PAGE: http://pure.au.dk/portal/en/persons/yue-xu(e729a6e2-295c-49d3-a414-4637c3ded356).html

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