NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Time-Varying Fund Manager Skill

Marcin Kacperczyk, Stijn Van Nieuwerburgh, Laura Veldkamp

NBER Working Paper No. 17615
Issued in November 2011
NBER Program(s):   AP   CF

Mutual fund managers can outperform the market by picking stocks or timing the market successfully. Previous work has estimated picking and timing skill, assuming that each manager is endowed with a fixed amount of each and found some evidence of picking skills and little evidence of timing skills among successful managers. This paper estimates skill separately in booms and recessions and finds that the extent to which managers focus on stock picking or market timing fluctuates with the state of the economy. Stock picking is more prevalent in booms, while market timing dominates in recessions. We use this finding to develop a new methodology for detecting managerial skill. The results suggest that some but not all managers have skill. We describe the characteristics of the skilled managers and show that skilled managers significantly outperform the market.

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Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17615

Time-Varying Fund Manager Skill, (with Stijn van Nieuwerburgh and Laura Veldkamp), 2014, Journal of Finance 69, forthcoming.

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