Does selectivity in mutual fund trades exploit sentiment timing?

In this study, we develop a method that can statistically identify fund managers that exhibit selectivity in their trades and find that occurrences of good and bad selectivity exceed random expectation. Mutual fund managers exhibit selectivity by tilting their portfolios toward better performing stocks when they buy (sell) stocks with high sentiment betas preceding an increase (decrease) in investor sentiment. Conversely, funds that incorrectly time investor sentiment exhibit bad stock selection, explaining the above random incidence of this behavior. Our method distinguishes skill from fortuitous stock selection and provides a practical tool for evaluating the performance of fund managers