Abstract
In this paper, I identify trades of fund managers. These trades account for about 30% of fund volume and outperform benchmarks and other fund trades by as much as 47 basis points per month. I identify such trades using an ex ante proxy that does not rely on any performance-related variables and is instead based on common trades of managers with similar information sets. The performance of best ideas is not explained by herding, short-term liquidity pressures, changes in the index composition, or funds' reaction to analyst revisions, and does not revert in the long term. The remaining fund trades (not best ideas) fail to beat passive benchmarks even before expenses, e.g., their average characteristic-adjusted return is statistically insignificant 0.03% per month. Finally, best ideas also improve funds' after-fee returns: Funds which participate in best idea trades beat other funds by up to 0.3% per quarter.
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