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Title: Can mutual fund managers pick stocks? Evidence from their trades prior to earnings announcements
Authors: Baker, Malcolm
Litov, Lubomir
Wachter, Jessica A.
Wurgler, Jeffrey
Issue Date: 28-Jul-2004
Series/Report no.: FIN-04-015
Abstract: We test whether fund managers have stock-picking skill by comparing their holdings and trades prior to earnings announcements with the returns realized at those events. This approach largely avoids the joint-hypothesis problem with long-horizon studies of fund performance. Consistent with skilled trading, we find that, on average, stocks that funds buy earn significantly higher returns at subsequent earnings announcements than stocks that they sell. Funds display persistence in our event return-based metrics, and those that do well tend to have a growth objective, large size, high turnover, and use incentive fees to motivate managers.
URI: http://hdl.handle.net/2451/26522
Appears in Collections:Finance Working Papers

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