Crystal ball discovered? New model forecasts manager success
Apr 15th, 2007 | Filed under: CAPM / Alpha TheoryActive managers - particularly hedge fund managers - are notoriously inconsistent. This fact is often held up as proof of efficient markets. The assumption: all managers eventually “revert to the mean”, “hot hands don’t last”, and “what goes up must come down.”
As a result, endless resources have been poured into the quest to find some way to predict manager performance other than to simply rely on historical returns. Naturally, such a finding could be lucrative for advisers - particularly those who benefit from the performance of other managers like, say, funds of hedge funds.
The latest attempt to do this has some intriguing possibilities. In a paper published in this month’s Journal of Finance, Marcin Kacperczyk of the University of British Columbia and Amit Seru of the University of Michigan propose a new metric called the “Reliance of Public Information” (RPI) to measure the extent to which a manager’s performance is correlated - not with the markets - but with “public information” (captured by consensus sell-side analyst recommendations). More…
To continue reading this article please login (at the right) or click here to learn more about accessing our archives.
