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Tuesday, April 11, 2006

Can Mutual Fund "Stars" Really Pick Stocks?

Abnormal Returns provides a link to a very interesting paper by Kosowski, Timmerman, Wermers, and White (forthcoming in the Journal of Finance, titled Can Mutual Fund "Stars" Really Pick Stocks? New Evidence from a Bootstrap Analysis. It's got some pretty high level statistics in it, so if you're not into that you might want to skip it. However, AR summarizes the paper's findings nicely:
  1. There are fund managers that demonstrate (beyond luck) positive alphas;
  2. As more funds have entered the marketplace it has become more difficult to identify strong managers;
  3. Top manager performance persists over time.
The third finding is interesting, because it dovetails with this recent paper (which I blogged on here). It gives evidence that there are also individuals who earn persistent abnormal returns.

You've gotta love the Web - I have a lot more meterial for class these days. I'm teaching about market efficiency next week, so these papers will definitely be on the docket for discussion.

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