tailieunhanh - Is Money Smart? A Study Of Mutual Fund Investors' Fund Selection Ability

When the actual holdings of the fund to be evaluated are available, it is possible to apply so-called weight-based performance measures. These measures essentially examine the covariance of the manager’s actual holdings, measured as proportions or portfolio weights, with the subsequent returns of the assets. The idea is that a manager who increases the fund’s exposure to a security or asset class before it performs well, or who anticipates and avoids losers, has investment ability. | THE JOURNAL OF FINANCE VOL. LIV NO. 3 JUNE 1999 Is Money Smart A Study of Mutual Fund Investors Fund Selection Ability LU ZHENG ABSTRACT A previous study finds evidence to support selection ability among active fund investors for equity funds listed in 1982. Using a large sample of equity funds I find evidence that funds that receive more money subsequently perform significantly better than those that lose money. This effect is short-lived and is largely but not completely explained by a strategy of betting on winners. In the aggregate there is no significant evidence that funds that receive more money subsequently beat the market. However it is possible to earn positive abnormal returns by using the cash flow information for small funds. Having experienced dramatic growth in the past two decades the mutual fund industry plays an important role in the . economy. As a major investment vehicle open-end mutual funds at the end of the first quarter of 1998 managed about trillion in assets a sum that exceeds all bank savings deposits. Due to the great number of funds in existence evaluating managers performance and selecting funds with relatively high risk-adjusted returns can be an especially difficult and challenging task. The growth of data companies such as Lipper Morningstar and Micropal and the explosion in the publication of books and articles on mutual funds both ref lect investors tremendous demand for detailed mutual fund information and investment advice. This huge demand suggests that many investors are making mutual fund investment decisions themselves and many of them study current and historical information about funds carefully during the decision-making process. With all the effort spent in selecting and evaluat University of Michigan Business School and Yale School of Management. I am grateful to Mark Carhart Eugene Fama and Kenneth French for providing the mutual fund data. I thank Christopher Blake Edwin Elton Wayne Ferson Kenneth French .