Why do investors entrust active mutual fund managers with large sums of money while receiving negative excess returns … on average? Our explanation is that investors have a coarser information set than fund managers which leads them to … systematically misinterpret managers' skill. When investors are unable to correctly quantify risk because they have no knowledge of …

managerial replacement. We find that managers with superior performance that is due to sample variation are more likely to be … dismissed than are ‘unlucky' managers indicating that many fund companies are not captivated by the ‘lucky' managers' extreme … performance and willing to give ‘unlucky' managers another chance. Furthermore, underperforming managers are more likely to be …

-skill managers outperform their low-skill peers in the following month in terms of raw returns and alphas. This outperformance is …