Can Mutual Fund Managers Pick Stocks? Evidence from Their Trades Prior to Earnings Announcements
Recent research finds that the stocks that mutual fund managers buy outperform the stocks that they sell (e.g., Chen, Jegadeesh, and Wermers (2000)). We study the nature of this stock-picking ability. We construct measures of trading skill based on how the stocks held and traded by fund managers per...
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| Veröffentlicht in: | Journal of financial and quantitative analysis 2010-10, Vol.45 (5), p.1111-1131 |
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| container_title | Journal of financial and quantitative analysis |
| container_volume | 45 |
| creator | Baker, Malcolm Litov, Lubomir Wachter, Jessica A. Wurgler, Jeffrey |
| description | Recent research finds that the stocks that mutual fund managers buy outperform the stocks that they sell (e.g., Chen, Jegadeesh, and Wermers (2000)). We study the nature of this stock-picking ability. We construct measures of trading skill based on how the stocks held and traded by fund managers perform at subsequent corporate earnings announcements. This approach increases the power to detect skilled trading and sheds light on its source. We find that the average fund’s recent buys significantly outperform its recent sells around the next earnings announcement, and that this accounts for a disproportionate fraction of the total abnormal returns to fund trades estimated in prior work. We find that mutual fund trades also forecast earnings surprises. We conclude that mutual fund managers are able to trade profitably in part because they are able to forecast earnings-related fundamentals. |
| doi_str_mv | 10.1017/S0022109010000426 |
| format | Article |
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We find that the average fund’s recent buys significantly outperform its recent sells around the next earnings announcement, and that this accounts for a disproportionate fraction of the total abnormal returns to fund trades estimated in prior work. We find that mutual fund trades also forecast earnings surprises. 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We conclude that mutual fund managers are able to trade profitably in part because they are able to forecast earnings-related fundamentals.</description><subject>Announcements</subject><subject>Average earnings</subject><subject>Earnings</subject><subject>Earnings forecasting</subject><subject>Fees</subject><subject>Financial investments</subject><subject>Financial management</subject><subject>Mutual funds</subject><subject>Portfolio management</subject><subject>Quantitative analysis</subject><subject>Stock shares</subject><subject>Trade</subject><issn>0022-1090</issn><issn>1756-6916</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2010</creationdate><recordtype>article</recordtype><sourceid>ABUWG</sourceid><sourceid>AFKRA</sourceid><sourceid>BENPR</sourceid><sourceid>CCPQU</sourceid><sourceid>DWQXO</sourceid><recordid>eNp1kE9LAzEQxYMoWP98AA9CwPNqZpNNsieR0lZBUbFibzFukrqtTTTZFf327lLRgziXObzfm3k8hA6AHAMBcXJHSJ4DKQmQbljON9AARMEzXgLfRINeznp9G-2ktOihPCcD9DjUHl-1Tatf8Lj1Bl9pr-c2JnxTV0t814RqmU7x6L021lcWuxhWePps64inURvbcbEOETcBj3T0tZ8nfOZ9aDt4ZX2T9tCW0y_J7n_vXXQ_Hk2H59nl9eRieHaZVQWFJtPdkq6SlDpjSglEWiMYk8wyQcvCVcY50MYRDUXJLLecMiELxrR-AmKA7qKj9d3XGN5amxq1CG303UuVCykgF1zKjoI1VcWQUrROvcZ6peOnAqL6ItWfIjvP4dqzSE2IP4ZclFAWRX8zW-t1auzHj67jUnFBRaH45FY9zIaz8YyCmnQ8_c6gV0-xNnP7G_X_FF_UDoy3</recordid><startdate>20101001</startdate><enddate>20101001</enddate><creator>Baker, Malcolm</creator><creator>Litov, Lubomir</creator><creator>Wachter, Jessica A.</creator><creator>Wurgler, Jeffrey</creator><general>Cambridge University Press</general><scope>BSCLL</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>3V.</scope><scope>7WY</scope><scope>7WZ</scope><scope>7X1</scope><scope>7XB</scope><scope>87Z</scope><scope>8A9</scope><scope>8BJ</scope><scope>8FK</scope><scope>8FL</scope><scope>ABUWG</scope><scope>AFKRA</scope><scope>ANIOZ</scope><scope>BENPR</scope><scope>BEZIV</scope><scope>CCPQU</scope><scope>DWQXO</scope><scope>FQK</scope><scope>FRAZJ</scope><scope>FRNLG</scope><scope>F~G</scope><scope>JBE</scope><scope>K60</scope><scope>K6~</scope><scope>L.-</scope><scope>M0C</scope><scope>PQBIZ</scope><scope>PQBZA</scope><scope>PQEST</scope><scope>PQQKQ</scope><scope>PQUKI</scope><scope>PRINS</scope><scope>Q9U</scope><scope>S0X</scope></search><sort><creationdate>20101001</creationdate><title>Can Mutual Fund Managers Pick Stocks? 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| ispartof | Journal of financial and quantitative analysis, 2010-10, Vol.45 (5), p.1111-1131 |
| issn | 0022-1090 1756-6916 |
| language | eng |
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| source | EBSCOhost Business Source Complete; Jstor Complete Legacy; Cambridge University Press Journals Complete |
| subjects | Announcements Average earnings Earnings Earnings forecasting Fees Financial investments Financial management Mutual funds Portfolio management Quantitative analysis Stock shares Trade |
| title | Can Mutual Fund Managers Pick Stocks? Evidence from Their Trades Prior to Earnings Announcements |
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