Managerial Performance Persistence. A Comparative Study of UK Investment Trusts

Abstract

This article examines UK investment trusts using a sample of 210 investment trusts from the period 1990 to 2006. The sample is free of survivorship bias. We find evidence of long-term managerial positive persistence. Performance is measured by Jensen’s alpha based on regression models such as the CAPM, Fama and French, (1993), three-factor model, Carhart, (1997), four-factor model and Guirguis, (2005), six-factor model. A positive value of Jensen’s alpha means that the fund manager has outperformed the market index. A negative value of Jensen’s alpha shows inferior performance. The significant t-statistic is a sign of stock picking ability based on skills and not on luck. Positive alphas measure the contribution of the manager to the performance of the fund. Thus, a positive and statistically significant alpha indicates superior managerial performance of the fund. In other words, a positive alpha indicates skilled fund manager whose decisions add value to the fund. Negative values or statistically insignificant values represent inferior or neutral managerial performance.