Time-varying fund manager skill

Laura Veldkamp

No 68, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: The literature assessing whether mutual fund managers have skill typically regards skill as an immutable attribute of the manager or the fund. We show that many measures of skill, such as returns, alphas, and measures of stock-picking and market-timing, appear to vary over the business cycle. We argue that skill is a general cognitive ability that is applied to different tasks, such as picking stocks or market timing. Using tools from the rational inattention literature, the theory shows that the relative value of these tasks varies cyclically. It generates indirect predictions for the dispersion and returns of fund portfolios that distinguish this explanation from others and which are supported by the data. In turn, these findings offer useful evidence to support the notion of rational attention allocation.

Date: 2012
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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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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:68

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