Article ID Journal Published Year Pages File Type
959640 Journal of Financial Economics 2011 19 Pages PDF
Abstract

The returns and stock holdings of institutional investors from 1980 to 2007 provide little evidence of stock-picking skill. Institutions as a whole closely mimic the market portfolio, with pre-cost returns that have nearly perfect correlation with the value-weighted index and an insignificant CAPM alpha of 0.08% quarterly. Institutions also show little tendency to bet on any of the main characteristics known to predict stock returns, such as book-to-market, momentum, or accruals. While particular groups of institutions have modest stock-picking skill relative to the CAPM, their performance is almost entirely explained by the book-to-market and momentum effects in returns. Further, no group holds a portfolio that deviates efficiently from the market portfolio.

► I study the returns and stock holdings of institutional investors from 1980 to 2007. ► Institutions, in aggregate, do not earn significant alphas. ► Institutions, in aggregate, take almost no bet on characteristics known to predict returns. ► Some groups of institutions beat the CAPM but performance is explained by other factors in returns. ► Institutions do not hold portfolios that deviate efficiently from the market portfolio.

Related Topics
Social Sciences and Humanities Business, Management and Accounting Accounting
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