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01 Mar 2003

Rating Better

Topics: Research-Research and DevelopmentFinance-Investment FundsFinance-Personal Finance
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Three finance professors have devised a new mutual fund rating system that appears to do a better job of separating fund managers whose performance reflects genuine ability from those whose results depend on luck alone. The authors of the research, HBS assistant professor Randolph Cohen, HBS associate professor Joshua Coval, and Lubos Pastor of the University of Chicago’s business school, conclude that a manager’s ability can best be detected by comparing his or her portfolio with those of other fund managers with stellar records. In contrast, according to a January 5, 2003, New York Times article, “current systems focus on results alone. They overlook a wealth of information that can give insight into a manager’s ability.”

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