Judging Fund Managers by the Company They Keep

Working Paper No. 9359 We develop a performance evaluation approach in which a fund manager's skill is judged by the extent to which his investment decisions resemble the decisions of managers with distinguished performance records. The proposed performance measures are estimated more precisely...

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Bibliographic Details
Published in:NBER Working Paper Series 2002-12, p.9359
Main Authors: Cohen, Randolph, Coval, Joshua, Pastor, Lubos
Format: Article
Language:English
Subjects:
Economic theory
Equity funds
Investment advisors
Performance evaluation
Stocks
Online Access:Get full text
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Summary:Working Paper No. 9359 We develop a performance evaluation approach in which a fund manager's skill is judged by the extent to which his investment decisions resemble the decisions of managers with distinguished performance records. The proposed performance measures are estimated more precisely than standard measures, because they use historical returns and holdings of many funds to evaluate the performance of a single fund. According to one of our measures, funds with significantly positive ability considerably outnumber funds with significantly negative ability at the end of our sample. Simulations demonstrate that our measures are particularly useful in ranking managers. In an application that relies on such ranking, we find only weak persistence in the performance of U.S. equity funds after accounting for momentum in stock returns.
ISSN:0898-2937
DOI:10.3386/w9359