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):Corporate Finance, Asset Pricing

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

A non-technical summary of this paper is available in the March 2005 NBER digest.  You can sign up to receive the NBER Digest by 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 w9542 A Catering Theory of Dividends
Feldstein and Bacchetta National Saving and International Investment
Rose w9347 Do WTO Members have More Liberal Trade Policy?
Smarzynska Javorcik and Wei w7969 Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence
Alesina, Barro, and Tenreyro w9072 Optimal Currency Areas
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

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

Contact Us