Detecting Superior Mutual Fund Managers: Evidence from Copycats

We examine the ex ante ability of investors to identify superior mutual fund managers among the investor set likelymost able, andwith the greatest incentive to do so, their rivals. Identifying actual copycat funds via comparisons of trading in consecutive periods, we find little evidence to suggest that managers are able to detect superior funds. Copycats select funds with high prior performance and investment inflows, and the performance of the target fund reverses following copying initiation. If superior managers exist, our results suggest that the source of skill lies in private information obtained by these managers. These results are consistent with information models indicating that private, but not public, information can be profitable.