Fund Manager Use of Public Information: New Evidence on Managerial Skills

We show theoretically that the responsiveness of a fund manager's portfolio allocations to changes in public information decreases in the manager's skill. We go on to estimate this sensitivity ("RPI") as the "R"-super-2 of the regression of changes in a manager's portfolio holdings on changes in public information using a panel of U.S. equity funds. Consistent with "RPI" containing information related to managerial skills, we find a strong inverse relationship between "RPI" and various existing measures of performance, and between "RPI" and fund flows. We also document that both fund- and manager-specific attributes affect "RPI". Copyright 2007 by The American Finance Association.