Learning About Mutual Fund Managers

Journal of Finance, Forthcoming

AFA 2014 Philadelphia Meetings

79 Pages Posted: 19 Feb 2013 Last revised: 25 Jan 2016

See all articles by Darwin Choi

Darwin Choi

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Bige Kahraman

University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR)

Abhiroop Mukherjee

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: January 23, 2016

Abstract

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

Choi, Darwin and Kahraman, Bige and Mukherjee, Abhiroop, Learning About Mutual Fund Managers (January 23, 2016). Journal of Finance, Forthcoming; AFA 2014 Philadelphia Meetings. Available at SSRN: https://ssrn.com/abstract=2219846 or http://dx.doi.org/10.2139/ssrn.2219846

Darwin Choi (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Bige Kahraman

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Abhiroop Mukherjee

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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