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The Value of Active Mutual Fund Management:An Examination of the Stockholdings and Trades ofFund Managers

Published online by Cambridge University Press:  06 April 2009

Hsiu-Lang Chen ,
Narasimhan Jegadeesh  and
Russ Wermers
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Abstract

We investigate the value of active mutual fundmanagement by examining the stockholdings and tradesof mutual funds. We fine that stocks widely held byfunds do not outperform other stocks. However,stocks purchased by funds have significantly higherreturns than stocks they sell—this is true for largestocks as well as small stocks, and for value stocksas well as growth stocks. We find thatgrowth-oriented funds exhibit better stock selectionskills than income-oriented funds. Finally, we findonly weak evidence that funds with the best pastperformance have better stock-picking skills thanfunds with the worst past performance.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 3 , September 2000 , pp. 343 - 368
Copyright
Copyright © School of Business Administration, University of Washington 2000

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Footnotes

*

Chen, University of Illinois at Chicago, Collegeof Business Administration, 601 South MorganStreet, Chicago, IL 60607; Jegadeesh, Universityof Illinois at Urbana-Champaign, College ofCommerce and Business Administration, 340 CommerceWest, 1206 South Sixth Street, Champaign, IL61820; and Wermers, University of Maryland atCollege Park, Robert H. Smith School of Business,College Park, MD 20742. Our thanks to CarlAckermann, John Griffin, Mark Grinblatt (associateeditor and referee), Mike Lemmon, Brian Reid, andAssem Safieddine, as well as to seminarparticipants at Arizona State University, theInternational Monetary Fund, the InvestmentCompany Institute, the University of Maryland,Michigan State University, the University of NotreDame, and the U.S. Securities and ExchangeCommission for helpful comments and suggestions.Wermers gratefully acknowledges prior support fromthe Richard M. Burridge Center for SecuritiesAnalysis and Valuation at the University ofColorado at Boulder.

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