Time-Varying Fund Manager Skill

Laura Veldkamp, Marcin Kacperczyk and Stijn Van Nieuwerburgh

No 9025, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: How to evaluate a fund manager?s skill is a central question in empirical finance. Prior literature has defined skill as an ability to either pick stocks or time the market, at all times. We propose a new definition of skill as a general cognitive ability used in different ways at different times. We find evidence for stock picking in booms and for market timing in recessions. Moreover, the same fund managers that pick stocks well in expansions also time the market well in recessions. These fund managers significantly outperform other funds and passive benchmarks. Our results suggest a new metric of managerial ability that can be constructed in real time and can predict fund performance. The metric gives more weight to a fund?s market timing in recessions and to a fund?s stock picking in booms, and it displays far more persistence than either market timing or stock picking alone.

Keywords: Business cycle; Mutual funds; Skills (search for similar items in EconPapers)
JEL-codes: G00 G11 G2 (search for similar items in EconPapers)
Date: 2012-07
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Time-Varying Fund Manager Skill (2014)
Working Paper: Time-varying fund manager skill (2012)
Working Paper: Time-Varying Fund Manager Skill (2011)
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