NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Can Mutual Fund Managers Pick Stocks? Evidence from the Trades Prior to Earnings Announcements

Malcolm Baker, Lubomir Litov, Jessica A. Wachter, Jeffrey Wurgler

NBER Working Paper No. 10685
Issued in August 2004
NBER Program(s):   CF   AP

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.

download in pdf format
   (165 K)

email paper

This paper is available as PDF (165 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10685

Published: 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) citation courtesy of

Users who downloaded this paper also downloaded these:
Baker and Wurgler w13189 Investor Sentiment in the Stock Market
Berk and Green w9275 Mutual Fund Flows and Performance in Rational Markets
Lehmann and Modest w1721 Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons
Cohen, Frazzini, and Malloy w13121 The Small World of Investing: Board Connections and Mutual Fund Returns
Hortacsu and Syverson w9728 Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of the S&P 500 Index Funds
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us