Trading Skills in Mutual Funds - Evidence from Daily Transactions

Using a proprietary dataset of daily mutual fund trades, we document strong evidence of manager skills in the Finnish market for both buys and sells. We find that manager’s risk-adjusted outperformance lasts up to five days. Additionally, we find that the capital-weighted average of trade returns for bought stocks is positively correlated with funds’ net alphas. We explain fund performance with several stock and fund characteristics and document a positive correlation between the invested net capital in each trade and trading profits. These results show that mutual fund managers provide value to their clients through above par investment skills.