Skip to main content
    • Aa
    • Aa
  • Get access
    Check if you have access via personal or institutional login
  • Cited by 35
  • Cited by
    This article has been cited by the following publications. This list is generated based on data provided by CrossRef.

    AKBAS, FERHAT 2016. The Calm before the Storm. The Journal of Finance, Vol. 71, Issue. 1, p. 225.

    Bennett, Scott Gallagher, David R. Harman, Graham Warren, Geoffrey J. Xi, Yuki and Smith, Tom 2016. A new perspective on performance persistence: evidence using portfolio holdings. Accounting & Finance, p. n/a.

    Goh, Jeremy Yang, Lisa and Chiyachantana, Chiraphol 2016. Valuation uncertainty, market sentiment and the informativeness of institutional trades. Journal of Banking & Finance,

    Jaggi, Bikki Li, Wei and Wang, Steven Shuye 2016. Individual and Institutional Investors’ Response to Earnings Reported by Conservative and Non-Conservative Firms: Evidence from Chinese Financial Markets. Journal of International Financial Management & Accounting, Vol. 27, Issue. 2, p. 158.

    Liebscher, Roberto and Mählmann, Thomas 2016. Are Professional Investment Managers Skilled? Evidence from Syndicated Loan Portfolios. Management Science,

    Mason, Andrew Agyei-Ampomah, Sam and Skinner, Frank 2016. Realism, skill, and incentives: Current and future trends in investment management and investment performance. International Review of Financial Analysis, Vol. 43, p. 31.

    Rahman, Shafiqur Lee, Cheng-Few and Xiao, Yaqing 2016. The investment performance, attributes, and investment behavior of ethical equity mutual funds in the US: an empirical investigation. Review of Quantitative Finance and Accounting,

    AGARWAL, VIKAS MULLALLY, KEVIN A. TANG, YUEHUA and YANG, BAOZHONG 2015. Mandatory Portfolio Disclosure, Stock Liquidity, and Mutual Fund Performance. The Journal of Finance, Vol. 70, Issue. 6, p. 2733.

    Aitken, Michael Cumming, Douglas and Zhan, Feng 2015. Exchange trading rules, surveillance and suspected insider trading. Journal of Corporate Finance, Vol. 34, p. 311.

    Berk, Jonathan B. and van Binsbergen, Jules H. 2015. Measuring skill in the mutual fund industry. Journal of Financial Economics, Vol. 118, Issue. 1, p. 1.

    Cai, Yu and Lau, Sie Ting 2015. Informed trading around earnings and mutual fund alphas. Journal of Banking & Finance, Vol. 60, p. 168.

    Du, Xingqiang 2015. How the Market Values Greenwashing? Evidence from China. Journal of Business Ethics, Vol. 128, Issue. 3, p. 547.

    Feng, Xunan and Johansson, Anders C. 2015. Can mutual funds pick stocks in China? Evidence from the IPO market. Journal of Banking & Finance, Vol. 55, p. 170.

    Green, Milford O’Hagan, Sean and Lefebvre, Martin 2015. The economic geography of institutional investment in the United States, 2010. Urban Geography, Vol. 36, Issue. 6, p. 798.

    Hendershott, Terrence Livdan, Dmitry and Schürhoff, Norman 2015. Are institutions informed about news?. Journal of Financial Economics, Vol. 117, Issue. 2, p. 249.

    Mohammad, Nazeeruddin and Ashraf, Dawood 2015. The market timing ability and return performance of Islamic equities: An empirical study. Pacific-Basin Finance Journal, Vol. 34, p. 169.

    Moneta, Fabio 2015. Measuring bond mutual fund performance with portfolio characteristics. Journal of Empirical Finance, Vol. 33, p. 223.

    Taylor, Daniel 2015. The Handbook of Equity Market Anomalies.

    Agarwal, Vikas Gay, Gerald D. and Ling, Leng 2014. Window Dressing in Mutual Funds. Review of Financial Studies, Vol. 27, Issue. 11, p. 3133.

    Billingsley, Randall S and Resnick, Bruce G 2014. A Trading Strategy to Profit from Overly Aggressive Downward Earnings Guidance. The Journal of Portfolio Management, Vol. 40, Issue. 2, p. 64.

  • Journal of Financial and Quantitative Analysis, Volume 45, Issue 5
  • October 2010, pp. 1111-1131

Can Mutual Fund Managers Pick Stocks? Evidence from Their Trades Prior to Earnings Announcements

  • Malcolm Baker (a1), Lubomir Litov (a2), Jessica A. Wachter (a3) and Jeffrey Wurgler (a4)
  • DOI:
  • Published online: 01 August 2010

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.

Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

J. Abarbanell , and R. Lehavy . “Biased Forecasts or Biased Earnings? The Role of Reported Earnings in Explaining Apparent Bias and Over/Underreaction in Analysts’ Earnings Forecasts.” Journal of Accounting and Economics, 36 (2003), 105146.

L. Barras ; O. Scaillet ; and R. Wermers . “False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas.” Journal of Finance, 65 (2010), 179216.

W Beaver . “The Information Content of Annual Earnings Announcements.” Journal of Accounting Research, 6 (1968), 6792.

V. L. Bernard , and J. K. Thomas . “Post-Earnings-Announcement Drift: Delayed Price Response or Risk Premium?Journal of Accounting Research, 27 (1989), 136.

S. J. Brown , and W. N. Goetzmann . “Performance Persistence.” Journal of Finance, 50 (1995), 679698.

M. M Carhart . “On Persistence in Mutual Fund Performance.” Journal of Finance, 52 (1997), 5782.

V. V. Chari ; R. Jagannathan ; and A. R. Ofer . “Seasonalities in Securities Returns: The Case of Earnings Announcements.” Journal of Financial Economics, 21 (1988), 101121.

H.-L. Chen ; N. Jegadeesh ; and R. Wermers . “The Value of Active Mutual Fund Management: An Examination of the Stockholdings and Trades of Mutual Fund Managers.” Journal of Financial and Quantitative Analysis, 35 (2000), 343368.

J. Chen ; H. Hong ; M. Huang ; and J. D. Kubik . “Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization.” American Economic Review, 94 (2004), 12761302.

J. Chevalier , and G. Ellison . “Are Some Mutual Fund Managers Better Than Others? Cross-Sectional Patterns in Behavior and Performance.” Journal of Finance, 54 (1999), 875899.

S. E. Christophe ; M. G. Ferri ; and J. J. Angel . “Short-Selling Prior to Earnings Announcements.” Journal of Finance, 59 (2004), 18451876.

R. B. Cohen ; J. D. Coval ; and L. Pastor . “Judging Fund Managers by the Company They Keep.” Journal of Finance, 60 (2005), 10571096.

K. Daniel ; M. Grinblatt ; S. Titman ; and R. Wermers . “Measuring Mutual Fund Performance with Characteristic-Based Benchmarks.” Journal of Finance, 52 (1997), 10351058.

E. J. Elton ; M. J. Gruber ; and C. R. Blake . “The Persistence of Risk-Adjusted Mutual Fund Performance.” Journal of Business, 69 (1996), 133157.

E. J. Elton ; M. J. Gruber ; and C. R. Blake . “Incentive Fees and Mutual Funds.” Journal of Finance, 58 (2003), 779804.

E. J. Elton ; M. J. Gruber ; C. R. Blake ; Y. Krasny ; and S. O. Ozelge . “The Effect of Holdings Data Frequency on Conclusions about Mutual Fund Behavior.” Journal of Banking and Finance, 34 (2010), 912922.

E. F Fama . “Efficient Capital Markets: A Review of Theory and Empirical Work.” Journal of Finance, 25 (1970), 383417.

E. F. Fama , and K. R. French . “Size and Book-to-Market Factors in Earnings and Returns.” Journal of Finance, 50 (1995), 131155.

E. F. Fama , and J. D. MacBeth . “Risk, Return, and Equilibrium: Empirical Tests.” Journal of Political Economy, 81 (1973), 607636.

W. E. Ferson , and R. W. Schadt . “Measuring Fund Strategy and Performance in Changing Economic Conditions.” Journal of Finance, 51 (1996), 425461.

A. Gomes ; G. Gorton ; and L. Madureira . “SEC Regulation Fair Disclosure, Information, and the Cost of Capital.” Journal of Corporate Finance, 13 (2007), 300334.

M. Grinblatt , and S. Titman . “Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings.” Journal of Business, 62 (1989), 393416.

M. Grinblatt , and S. Titman . “Performance Measurement Without Benchmarks: An Examination of Mutual Fund Returns.” Journal of Business, 66 (1993), 4768.

D. Hendricks ; J. Patel ; and R. Zeckhauser . “Hot Hands in Mutual Funds: Short-Run Persistence of Relative Performance, 1974–1988.” Journal of Finance, 48 (1993), 93130.

R. A Ippolito . “Efficiency with Costly Information: A Study of Mutual Fund Performance, 1965–1984.” Quarterly Journal of Economics, 104 (1989), 123.

P. Irvine ; M. Lipson ; and A. Puckett . “Tipping.” Review of Financial Studies, 20 (2007), 741768.

M. C Jensen . “The Performance of Mutual Funds in the Period 1945–1964.” Journal of Finance, 23 (1968), 389416.

M. Kacperczyk , and A. Seru . “Fund Manager Use of Public Information: New Evidence on Managerial Skills.” Journal of Finance, 62 (2007), 485528.

M. Kacperczyk ; C. Sialm ; and L. Zheng . “Unobserved Actions of Mutual Funds.” Review of Financial Studies, 21 (2008), 23792416.

B. Ke ; S. Huddart ; and K. Petroni . “What Insiders Know about Future Earnings and How They Use It: Evidence from Insider Trades.” Journal of Accounting & Economics, 35 (2003), 315346.

R. La Porta ; J. Lakonishok ; A. Shleifer ; and R. Vishny . “Good News for Value Stocks: Further Evidence on Market Efficiency.” Journal of Finance, 52 (1997), 859874.

B. Lehman , and D. Modest . “Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons.” Journal of Finance, 42 (1987), 233265.

R Wermers . “Mutual Fund Herding and the Impact on Stock Prices.” Journal of Finance, 54 (1999), 581622.

R Wermers . “Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transactions Costs, and Expenses.” Journal of Finance, 55 (2000), 16551695.

X. S. Yan , and Z. Zhang . “Institutional Investors and Equity Returns: Are Short-Term Institutions Better Informed?Review of Financial Studies, 22 (2009), 893924.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *