Doctors Managing Mutual Funds : Returns to Specialization in Asset Management

We investigate the returns to specialized knowledge in asset management, by comparing the performance of medical specialists and generalists in managing health care sector mutual funds. Specialist alpha is nearly 5% higher on an annualized basis, after controlling for fund and manager observable characteristics. Specialist outperformance is robust to different performance measures, different subperiods, and alternative variable definitions. Specialists have better timing ability for industry-specific events (FDA drug rejections) but not for general financial events (merger announcements). Our paper provides new evidence on manager characteristics that create a competitive advantage in generating alpha