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Time‐Varying Fund Manager Skill
Author(s) -
KACPERCZYK MARCIN,
NIEUWERBURGH STIJN VAN,
VELDKAMP LAURA
Publication year - 2014
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12084
Subject(s) - recession , boom , market timing , manager of managers fund , stock (firearms) , stock market , income fund , economics , business , monetary economics , finance , investment fund , fund administration , portfolio , macroeconomics , mechanical engineering , paleontology , horse , environmental engineering , biology , market liquidity , engineering
We propose a new definition of skill as general cognitive ability to pick stocks or time the market. We find evidence for stock picking in booms and market timing in recessions. Moreover, the same fund managers that pick stocks well in expansions also time the market well in recessions. These fund managers significantly outperform other funds and passive benchmarks. Our results suggest a new measure of managerial ability that weighs a fund's market timing more in recessions and stock picking more in booms. The measure displays more persistence than either market timing or stock picking alone and predicts fund performance.