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The Portfolio Choices of Young and Old Active Mutual Fund Managers

58 Pages Posted: 19 Mar 2008 Last revised: 17 Sep 2010

David A. Chapman

McIntire School, University of Virginia

Richard B. Evans

University of Virginia - Darden School of Business

Zhe Xu

Boston College

Date Written: September 3, 2010

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.

Keywords: Mutual Funds, Career Concerns, Portfolio Choice

JEL Classification: G11, G23

Suggested Citation

Chapman, David A. and Evans, Richard B. and Xu, Zhe, The Portfolio Choices of Young and Old Active Mutual Fund Managers (September 3, 2010). AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1021363 or http://dx.doi.org/10.2139/ssrn.1021363

David A. Chapman (Contact Author)

McIntire School, University of Virginia ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

HOME PAGE: http://https://sites.google.com/site/davidchapmanswebsite/

Richard B. Evans

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)

HOME PAGE: http://faculty.darden.virginia.edu/evansr/

Zhe Xu

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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