The Selection and Termination of Investment Managers By Plan Sponsors

Amit Goyal

University of Lausanne; Swiss Finance Institute

Sunil Wahal

Arizona State University (ASU) - Finance Department

Journal of Finance, Forthcoming

We examine the selection and termination of investment management firms by 3,400 plan sponsors between 1994 and 2003. Plan sponsors hire investment managers after large positive excess returns but this return chasing behavior does not deliver positive excess returns thereafter. Investment managers are terminated for a variety of reasons, including but not limited to underperformance. Excess returns after terminations are typically indistinguishable from zero but in some cases positive. In a sample of round-trip firing and hiring decisions, we find that if plan sponsors had stayed with fired investment managers, their excess returns would be no different than those delivered by newly hired managers. We uncover significant variation in pre- and post-hiring and firing returns that is related to plan sponsor characteristics.

Keywords: Pensions, Asset Management, Plan Sponsors

JEL Classification: G23, G12

Not Available For Download

Date posted: June 18, 2007  

Suggested Citation

Goyal, Amit and Wahal, Sunil, The Selection and Termination of Investment Managers By Plan Sponsors. Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=994304

Contact Information

Amit Goyal
University of Lausanne ( email )
Lausanne, CH-1015
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Sunil Wahal (Contact Author)
Arizona State University (ASU) - Finance Department ( email )
W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
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