Time-Varying Fund Manager Skill

Authors

  • MARCIN KACPERCZYK,

  • STIJN VAN NIEUWERBURGH,

  • LAURA VELDKAMP

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    • Marcin Kacperczyk is with Imperial College and NBER. Stijn van Nieuwerburgh and Laura Veldkamp are with NYU Stern School of Business, NBER, and CEPR. We thank an anonymous referee, the Editor (Cam Harvey), and an Associate Editor for many useful suggestions. We thank the Q-group for their generous financial support.


ABSTRACT

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.

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