Do Mutual Fund Managers Have Asset Management Skills? Evidence from New Measures on Crisis Management and Directional Trading
99 Pages Posted: 10 Sep 2009
Date Written: September 8, 2009
Abstract
We develop a directional trading model and a crisis management model to measure fund manager skills more adequately. We test the robustness of both traditional market timing models and new management skill models to changes in their underlying investor utility function and excess return definition. We apply our theoretical findings to an empirical setting in that we test 131 US mutual funds for management skills over the past 24 years. Firstly, we find argumentative evidence that fund managers may add investor value by correctly predicting times of high volatility and financial crises, and adjusting their portfolio’s risk exposure accordingly. Secondly, based on simulated fund returns of perfect market timers, imperfect market timers, and inconsistent market timers, we find return timing models to be relatively unrobust to changes in utility assumptions and robust to changes in the underlying excess return definition. Thirdly, empirically, we find positive market timing skills in maximum capital gains funds and growth funds for our first sub-period (1985-1995). These results are robust to potential misspecification. Likewise, the evidence of positive (negative) directional trading skills that we find for the first (second) sub-period is robust to misspecification. Finally, we find that fund managers reveal positive crisis management skills during the second sub-period (1996-2008).
Keywords: crisis management, directional trading, manager skills, market timing, mutual funds
JEL Classification: G01, G10, G11
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Risk Taking by Mutual Funds as a Response to Incentives
By Judith A. Chevalier and Glenn Ellison
-
Mutual Fund Flows and Performance in Rational Markets
By Richard C. Green and Jonathan Berk
-
Mutual Fund Flows and Performance in Rational Markets
By Richard C. Green and Jonathan Berk
-
Career Concerns of Mutual Fund Managers
By Judith A. Chevalier and Glenn Ellison
-
Career Concerns of Mutual Fund Managers
By Judith A. Chevalier and Glenn Ellison
-
The Persistence of Risk-Adjusted Mutual Fund Performance
By Edwin J. Elton, Martin J. Gruber, ...
-
By Judith A. Chevalier and Glenn Ellison
-
Hot Hands in Mutual Funds: the Persistence of Performance, 1974-87
By Darryll Hendricks, Jayendu Patel, ...
-
By Narasimhan Jegadeesh, Hsiu-lang Chen, ...