This paper aims to examine whether managerial skill can be effectively measured using value added and alpha in the Korean equity fund market. We document that fund managers generate positive and persistent skill when measured by both gross value added and gross alpha. Unlike equilibrium-based predictions, alpha retains predictive power for future value creation in the Korean market, reflecting limited scale diseconomies in fund size. We further show that managerial compensation responds to past performance, while a substantial portion of value added remains with investors, indicating incomplete rent extraction. Overall, our findings highlight the importance of market structure in evaluating managerial skill and suggest that value added and alpha serve complementary roles in less competitive fund markets.
Lee et al. (Fri,) studied this question.