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Learning about Mutual Fund Managers
Author(s) -
CHOI DARWIN,
KAHRAMAN BIGE,
MUKHERJEE ABHIROOP
Publication year - 2016
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12405
Subject(s) - mutual fund , manager of managers fund , fund administration , predictability , closed end fund , finance , open end fund , business , target date fund , capital (architecture) , fund of funds , index fund , institutional investor , corporate governance , mathematics , statistics , archaeology , market liquidity , history
We study capital allocations to managers with two mutual funds, and show that investors learn about managers from their performance records. Flows into a fund are predicted by the manager's performance in his other fund, especially when he outperforms and when signals from the other fund are more useful. In equilibrium, capital should be allocated such that there is no cross‐fund predictability. However, we find positive predictability, particularly among underperforming funds. Our results are consistent with incomplete learning: while investors move capital in the right direction, they do not withdraw enough capital when the manager underperforms in his other fund.