Is Timing Everything? The Value of Mutual Fund Manager Trades

Abstract

I develop new measures of the value of active mutual fund management using portfolio holdings. These measures simultaneously test for trading and selection skill within stocks, industries, and characteristics. I demonstrate that most of the skill documented in prior studies comes from correctly trading stocks within industries, though funds also have some skill in timing industries. However, prior research focuses on the period 1980-1994. I also test the hold out sample 1995-2007. Contrary to prior results, the latter period (and the full sample) demonstrates that mutual funds generate no excess returns from any category of skill. © 2013 Financial Management Association International.