How to Tell If a Money Manager Knows More?

　　In this paper, we develop a methodology to identify money managers who have private
information about future asset returns. The methodology does not rely on a specific risk
model, such as the Sharpe ratio, CAPM, or APT. Instead, it relies on the observation
that returns generated by managers with private information cannot be replicated by those
without it. Using managers’ trading records, we develop distribution-free tests that can
identify such managers. We show that our approach is general with regard to the nature of
private information the managers may have, and with regard to the trading strategies they
may follow.