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The win–loss ratio as an ability signal of mutual fund managers: a measure that is less influenced by luck

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  • Y. Chung
  • Thomas Kim

Abstract

To better identify skilled mutual fund managers, we develop a mutual fund performance predictor that is less influenced by luck. We posit that it is unlikely for a fund manager to consistently hold numerous above median performing stocks unless he has stock-picking ability. Using the number of above median performing stocks as a fund performance predictor (win–loss ratio), we find that a higher win–loss ratio in 1 year is associated with 2–4 % additional risk-adjusted return in the next. The ratio also has an economically and statistically significant predictive power after controlling for other fund performance predictors in the literature. Copyright Swiss Society for Financial Market Research 2015

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  • Y. Chung & Thomas Kim, 2015. "The win–loss ratio as an ability signal of mutual fund managers: a measure that is less influenced by luck," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 29(4), pages 301-335, November.
    • Handle: RePEc:kap:fmktpm:v:29:y:2015:i:4:p:301-335
    DOI: 10.1007/s11408-015-0255-3
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    Cited by:

    1. Qiang Bu, 2018. "Long-term negative fund alpha: Is it caused by bad skill or bad luck?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 32(1), pages 1-16, February.

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    More about this item

    Keywords

    Mutual funds; Luck vs. skill; Win–loss ratio; Performance evaluation; Holdings data; G11;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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