Mardi | 2020-01-28
B103 16h 17h20
We develop a simple, nonparametric approach for estimating the entire distributions of mutual fund skill and its economic value. Our approach avoids the challenge of specifying these distributions and accommodates the need to study jointly multiple skill measures. Our results show that the vast majority of the funds are skilled, which allows them to earn large economic profits. We also show that investment and trading skills vary substantially across funds and are strongly negatively correlated—two features that are partly driven by the strategies followed by funds. Finally, we find that the fund industry (i) is not heavily concentrated, (ii) earn profits that are close to the optimal level, and (iii) is in a strong bargaining position vis-a-vis investors.