Can Mutual Fund Managers Pick Stocks? Evidence from the Trades Prior to Earnings Announcements
Jessica Wachter () and
Jeffrey Wurgler ()
No 10685, NBER Working Papers from National Bureau of Economic Research, Inc
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.
JEL-codes: G2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-fin
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Published as Baker, Malcolm, Lubomir Litov, Jessica A. Wachter, and Jeffrey Wurgler, "Can mutual fund managers pick stocks? Evidence from their trades prior to earnings announcements", Journal of Financial and Quantitative Analysis, Volume 45 - Issue 05. (2010)
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