When is stock picking likely to be successful? Evidence from mutual funds

Ying Duan, Gang Hu, R. David McLean

Research output: Journal article publicationJournal articleAcademic researchpeer-review

17 Citations (Scopus)

Abstract

Consistent with a costly arbitrage equilibrium in which arbitrage costs insulate mis-pricing, this study finds that mutual fund managers have stock-picking ability for stocks with high idiosyncratic volatility but not for stocks with low idiosyncratic volatility. These findings suggest that fund managers and other investors may want to pay special attention to high-idiosyncratic-volatility stocks because they provide fertile ground for stock picking. The study also finds that the stockpicking ability of the average mutual fund manager declined after the extreme growth in the number of both mutual funds and hedge funds in the late 1990s.
Original languageEnglish
Pages (from-to)55-66
Number of pages12
JournalFinancial Analysts Journal
Volume65
Issue number2
DOIs
Publication statusPublished - 1 Mar 2009
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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