The Value of Active Mutual Fund Management:An Examination of the Stockholdings and Trades ofFund Managers

Abstract

We investigate the value of active mutual fundmanagement by examining the stockholdings and tradesof mutual funds. We fine that stocks widely held byfunds do not outperform other stocks. However,stocks purchased by funds have significantly higherreturns than stocks they sell—this is true for largestocks as well as small stocks, and for value stocksas well as growth stocks. We find thatgrowth-oriented funds exhibit better stock selectionskills than income-oriented funds. Finally, we findonly weak evidence that funds with the best pastperformance have better stock-picking skills thanfunds with the worst past performance.