Finance Cluster Seminar: Russ Wermers
This paper proposes new holdings-based measures of fund investment horizon and examines the relation between manager skills and fund holding horizon. We find that stock holdings, in aggregate, of long-horizon funds are informative about superior future long-term stock performance. Specifically, stocks largely held by long-horizon funds outperform stocks largely held by short-horizon funds by 2.4% - 4% per year over the following five-year period. Moreover, long-term equity positions mostly held by long-horizon funds outperform short-term positions. This superior performance stems from managerial ability to identify superior long-term firm fundamentals. We further show that fund investment horizon identifies, cross-sectionally, mutual funds with intrinsic skills, while turnover reflects time-series variation in skills of funds having short-term investment opportunities.
Russ Wermers is Professor of Finance at the Smith School of Business, University of Maryland at College Park, where he won a campus-wide teaching award during 2005 and a Krowe Teaching Award (within the Smith Business School) during 2013. His main research interests include studies of the efficiency of securities markets, as well as the role of institutional investors in setting stock prices. In addition, he studies and teaches quantitative equity strategies, and is currently researching microfinance institutions in Thailand.
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