NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Unobserved Actions of Mutual Funds

Marcin Kacperczyk, Clemens Sialm, Lu Zheng

NBER Working Paper No. 11766
Issued in November 2005
NBER Program(s):   AP

Despite extensive disclosure requirements, mutual fund investors do not observe all actions of fund managers. We estimate the impact of unobserved actions on fund returns using the return gap, which is defined as the difference between the reported fund return and the return of a portfolio that invests in the previously disclosed holdings after adjusting for expenses. Analyzing monthly return data on more than 2,500 unique U.S. equity funds over the period 1984-2003, we document a substantial cross-sectional heterogeneity and time-series persistence in the return gap, thus demonstrating that unobserved actions of some funds persistently create value, while such actions of others destroy value. Most important, we show that the return gap helps to predict future fund performance and conclude that fund investors should use the return gap as an additional measure to evaluate the performance of mutual funds.

download in pdf format
   (363 K)

email paper

This paper is available as PDF (363 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11766

Published: Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2008. "Unobserved Actions of Mutual Funds," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 21(6), pages 2379-2416, November.

Users who downloaded this paper also downloaded these:
Da, Gao, and Jagannathan w14609 Informed Trading, Liquidity Provision, and Stock Selection by Mutual Funds
Huang, Sialm, and Zhang w14903 Risk Shifting and Mutual Fund Performance
Pastor and Stambaugh w7779 Evaluating and Investing in Equity Mutual Funds
Chen, Ferson, and Peters w15318 Measuring the Timing Ability and Performance of Bond Mutual Funds
Berk and Green w9275 Mutual Fund Flows and Performance in Rational Markets
 
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