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Skill in Mutual Funds

Paper Session

Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Harbor A
Hosted By: American Finance Association
  • Chair: Lucian Taylor, University of Pennsylvania

What Do Mutual Fund Managers' Private Portfolios Tell Us About Their Skills?

Markus Ibert
,
Federal Reserve Board

Abstract

I collect a registry-based dataset on the personal portfolios of Swedish mutual fund
managers. The managers who invest personal money in the very same funds they professionally manage outperform the managers who do not. The main results are consistent with a Berk and Green (2004) equilibrium in which fund managers, in contrast to regular investors, are certain about their ability to generate abnormal returns, or lack thereof, and invest their personal wealth accordingly.

Mutual Fund Flows and Performance in (Imperfectly) Rational Markets?

Nikolai Roussanov
,
University of Pennsylvania
Hongxun Ruan
,
Peking University
Yanhao Wei
,
University of Southern California

Abstract

Does the observed relationship between mutual fund flows and recent performance represent irrational “return chasing” or rational learning about unobserved asset manager skill? We estimate a structural model of investor beliefs implicit in the fund flows and compare it with the rational Bayesian benchmark that is based on past performance. Our estimates imply that investors are more optimistic about fund manger's average skill than warranted by the historical data, over-weight recent performance in a manner consistent with models based on the “representativeness” heuristic, yet respond slowly to changes in these beliefs, consistent with limited attention and/or informational frictions.

Cross-Asset Information Synergy in Mutual Fund Families

Jun Kyung Auh
,
Georgetown University
Jennie Bai
,
Georgetown University

Abstract

Despite common wisdom that equities and bonds are segmented, the organization structure of fund families can offset frictions regarding cross-asset segmentation. We find that actively-managed equity funds and corporate bond funds linked within a mutual fund family exhibit a significant co-movement in holdings of commonly-held firms’ equities and bonds. Such cross-holdings facilitate information spillover, manifesting itself in the co-movement. Synthesizing cross-asset information can predict future equity returns and create profits for fund families as well as general investors. Our findings accentuate the importance of collaboration between equity funds and bond funds within fund families.
Discussant(s)
Juhani Linnainmaa
,
University of Southern California
Jonathan Berk
,
Stanford University
Clemens Sialm
,
University of Texas-Austin and NBER
JEL Classifications
  • G1 - General Financial Markets