The Portfolio Choices of Young and Old Active Mutual Fund Managers

Abstract:     
We examine the optimal portfolio choices of young and old fund managers in a calibrated dynamic life-cyle model of the active manager’s investment problem. The optimal policies of any manager depend on age, the wealth to labor income ratio, the value of the manager’s private information, and recent past performance relative to the benchmark. While age differences alone (with or without learning) do not generate significant differences in the optimal choices of young and old managers, both age combined with wealth and the introduction of learning have an economically significant effect on optimal managed portfolio choices. Simulations of the optimal managed portfolio returns produces measurable differences in the portfolio returns of young versus old managers when we also condition on either wealth or prior performance.

Number of Pages in PDF File: 58

Keywords: Mutual Funds, Career Concerns, Portfolio Choice

JEL Classification: G11, G23

working papers series