Theses Doctoral

The Cross-Section of Investing Skill

Sastry, Ravindra Vadali

Building on insights from the economics of superstars, I develop an efficient method for estimating the skill of mutual fund managers. Outliers are especially helpful for disentangling skill from luck when I explicitly model the cross-sectional distribution of managerial skill using a flexible and realistic function. Forecasted performance is dramatically improved relative to standard regression estimates: an investor selecting (avoiding) the best (worst) decile of funds would improve risk-adjusted performance by 2% (3%) annually. The distribution of skill is found to be fat-tailed and positively skewed, providing a theoretical explanation for the convexity of fund flows.



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More About This Work

Academic Units
Thesis Advisors
Johannes, Michael S.
Ph.D., Columbia University
Published Here
June 6, 2012