Do the trades and stockholdings of fund managers reveal private information?
This paper examines the performance of the stock holdings and trades of a sample of Australian fund managers over the period from 1990 to 1997. When stockholdings are observable, performance measures can be constructed that are much more precise than traditional performance measures that examine the net fund return. We find the stocks held by fund managers realise abnormal returns consistent with there being some stock-selection ability across fund managers. As a more powerful examination of the private information possessed by fund managers we also examine the performance of trades. We find that the stocks they buy realise abnormal returns and the precision of the information is greater for large buy trades relative to small buy trades. For sell trades we find no evidence of abnormal returns, which suggests that fund managers do not possess superior information in regard to bad news. Overall the results, in contrast to the general consensus from traditional performance studies that fund managers do not possess superior information, are consistent with fund managers possessing superior information.
Conference: University of Otago, Finance department, Seminar 2001, Room 2.07, University of Otago, Dunedin, Otago
Keywords: stock holdings; performance measures; fund managers; abnormal returns