Learning About Mutual Fund Managers
AFA 2014 Philadelphia Meetings
79 Pages Posted: 19 Feb 2013 Last revised: 25 Jan 2016
Date Written: January 23, 2016
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.
Keywords: Mutual Funds, Flow-Performance, Performance Predictability
JEL Classification: G11, G23
Suggested Citation: Suggested Citation