Measuring Managerial Skill in the Mutual Fund Industry

Jonathan B. Berk, Jules H. van Binsbergen

NBER Working Paper No. 18184
Issued in June 2012
NBER Program(s):   AP

Using the dollar-value a mutual fund manager adds as the measure of skill, we find that not only does skill exist (the average mutual fund manager adds about $2 million per year), but this skill is persistent, as far out as 10 years. We further document that investors recognize this skill and reward it by investing more capital with skilled managers. Higher skilled managers are paid more and there is a strong positive correlation between current managerial compensation and future performance.

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This paper was revised on August 28, 2012

Acknowledgments

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