TY  - JOUR
AU  - Kacperczyk,Marcin
AU  - Nieuwerburgh,Stijn Van
AU  - Veldkamp,Laura
TI  - Rational Attention Allocation Over the Business Cycle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15450
PY  - 2009
Y2  - October 2009
UR  - http://www.nber.org/papers/w15450
L1  - http://www.nber.org/papers/w15450.pdf
N1  - Author contact info:
Marcin Kacperczyk
Stern School of Business
New York University
44 West 4th Street
KMC 9-190
New York, NY 10012
Tel: 212/998-0924
E-Mail: mkacperc@stern.nyu.edu

Stijn Van Nieuwerburgh
Stern School of Business
New York University
44 W 4th Street, Suite 9-120
New York, NY 10012
Tel: 646/284-4141
Fax: 646/284-4141
E-Mail: svnieuwe@stern.nyu.edu

Laura Veldkamp
Stern School of Business
New York University
44 W Fourth Street,Suite 7-77
New York, NY 10012
Tel: 212/998-0527
Fax: 212/995-4218
E-Mail: lveldkam@stern.nyu.edu
AB  - The literature assessing whether mutual fund managers have skill typically regards skill as an immutable attribute of the manager or the fund. Yet, many measures of skill, such as returns, alphas, and measures of stock-picking and market-timing, appear to vary over the business cycle. Because time-varying ability seems far-fetched, these results call into question the existence of skill itself. This paper offers a rational explanation, arguing that skill is a general cognitive ability that can be applied to different tasks, such as picking stocks or market timing. Using tools from the rational inattention literature, we show that the relative value of these tasks varies cyclically. The model generates indirect predictions for the dispersion and returns of fund portfolios that distinguish this explanation from others and which are supported by the data. In turn, these findings offer useful evidence to support the notion of rational attention allocation.
ER  -