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Are active fund managers collectors of private information or fast interpreters of public information?


  • The authors thank Gilad Livine, Jane Hronsky, Geoff Burrows, John Lyon, the Deputy Editor (Michael Bradbury) and two anonymous referees for helpful comments, and the investment managers and Mercer Investment Consulting, and SIRCA for the use of fund manager transactions information and ASX SEATS data, respectively. We also thank seminar participants at the University of Melbourne for feedback.


Recent studies of fund manager performance find evidence of outperformance. However limited research exists as to whether such outperformance is because of privately collected information, or merely expedient interpretation of publicly released information. In this study, we examine the trade sequences of active Australian equity fund managers around earnings announcements to provide insights into the source of fund managers’ superior information. We document an increased occurrence of buy-sell trade sequences around good-news earnings announcements. The evidence is consistent with fund managers having both private information about forthcoming good-news earnings announcements and being ‘short-term profiteers’. We find no evidence that fund managers have private information about forthcoming bad-news earnings announcements. However, we do find an increase in the frequency of fund managers not trading before bad-news earnings announcements only to subsequently sell during announcements.