Fund Management Skill and Noise Trading

In this research authors show that institutional investors' skill matters the most during high sentiment periods when market signals are noisy. The results reveal that fund managers with the highest (lowest) skill add (lose) $7.71 ($5.64) million of value during high sentiment periods, compared with $3.74 million gain realized by the average manager during the entire sample period. When the market sentiment is low, high-skilled fund managers incur a value loss of only $0.18, much smaller than the $30.32 million loss realized by their low-skilled counterparts