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The Value of Active Mutual Fund Management: An Examination of the Stockholdings and Trades of Fund 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 fund management by examining the stockholdings and trades of mutual funds. We fine that stocks widely held by funds do not outperform other stocks. However, stocks purchased by funds have significantly higher returns than stocks they sell—this is true for large stocks as well as small stocks, and for value stocks as well as growth stocks. We find that growth-oriented funds exhibit better stock selection skills than income-oriented funds. Finally, we find only weak evidence that funds with the best past performance have better stock-picking skills than funds with the worst past performance.

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, College of Business Administration, 601 South Morgan Street, Chicago, IL 60607; Jegadeesh, University of Illinois at Urbana-Champaign, College of Commerce and Business Administration, 340 Commerce West, 1206 South Sixth Street, Champaign, IL 61820; and Wermers, University of Maryland at College Park, Robert H. Smith School of Business, College Park, MD 20742. Our thanks to Carl Ackermann, John Griffin, Mark Grinblatt (associate editor and referee), Mike Lemmon, Brian Reid, and Assem Safieddine, as well as to seminar participants at Arizona State University, the International Monetary Fund, the Investment Company Institute, the University of Maryland, Michigan State University, the University of Notre Dame, and the U.S. Securities and Exchange Commission for helpful comments and suggestions. Wermers gratefully acknowledges prior support from the Richard M. Burridge Center for Securities Analysis and Valuation at the University of Colorado at Boulder.

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