Unobserved Actions of Mutual Funds

49 Pages Posted: 8 Feb 2006 Last revised: 27 Aug 2010

See all articles by Marcin T. Kacperczyk

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; National Bureau of Economic Research (NBER)

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Lu Zheng

University of California, Irvine - Paul Merage School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: November 2005

Abstract

Despite extensive disclosure requirements, mutual fund investors do not observe all actions of fund managers. We estimate the impact of unobserved actions on fund returns using the return gap, which is defined as the difference between the reported fund return and the return of a portfolio that invests in the previously disclosed holdings after adjusting for expenses. Analyzing monthly return data on more than 2,500 unique U.S. equity funds over the period 1984-2003, we document a substantial cross-sectional heterogeneity and time-series persistence in the return gap, thus demonstrating that unobserved actions of some funds persistently create value, while such actions of others destroy value. Most important, we show that the return gap helps to predict future fund performance and conclude that fund investors should use the return gap as an additional measure to evaluate the performance of mutual funds.

Suggested Citation

Kacperczyk, Marcin T. and Sialm, Clemens and Zheng, Lu, Unobserved Actions of Mutual Funds (November 2005). NBER Working Paper No. w11766. Available at SSRN: https://ssrn.com/abstract=847038

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Clemens Sialm (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

HOME PAGE: http://faculty.mccombs.utexas.edu/Clemens.Sialm/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Lu Zheng

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States
9498248365 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
63
rank
2,246
Abstract Views
1,027
PlumX Metrics