TY  - JOUR
AU  - Kacperczyk,Marcin
AU  - Sialm,Clemens
AU  - Zheng,Lu
TI  - Unobserved Actions of Mutual Funds
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11766
PY  - 2005
Y2  - November 2005
UR  - http://www.nber.org/papers/w11766
L1  - http://www.nber.org/papers/w11766.pdf
N1  - Author contact info:
Marcin Kacperczyk
Stern School of Business
New York University
44 West 4th Street
KMC 9-190
New York, NY 10012
Tel: 212/998-0924
E-Mail: mkacperc@stern.nyu.edu

Clemens Sialm
University of Texas at Austin
McCombs School of Business
1 University Station; B6600
Austin, TX 78712
Tel: 512-232-6835
E-Mail: clemens.sialm@mccombs.utexas.edu

Lu Zheng
School of Business Administration
University of Michigan
701 Tappan Street
Ann Arbor, MI 48109
Tel: 734/763-5392
E-Mail: no email available
AB  - 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.
ER  -