Mutual Fund Competition, Managerial Skill, and Alpha Persistence

97 Pages Posted: 11 Apr 2014 Last revised: 28 Sep 2017

See all articles by Gerard Hoberg

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Nitin Kumar

Indian School of Business (ISB), Hyderabad

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School

Date Written: September 27, 2017

Abstract

What economic forces limit mutual fund managers from generating consistent outperformance? We propose and test the hypothesis that buy-side competition from other funds matters. We make three contributions in this regard. First, we propose new style-based spatial methods to identify the customized rivals of each fund. Second, we construct dynamic, fund-specific measures of competition and generate measures of skill as a fund's outperformance relative to its customized peers. Finally, we show that funds outperforming their customized rivals generate future alpha when they face less competition. These results are economically significant and last for over four quarters.

Keywords: Mutual funds, alpha, skill, persistence, competition, peers, benchmarking

JEL Classification: G10, G11, G12

Suggested Citation

Hoberg, Gerard and Kumar, Nitin and Prabhala, Nagpurnanand, Mutual Fund Competition, Managerial Skill, and Alpha Persistence (September 27, 2017). Forthcoming, Review of Financial Studies, Finance Down Under 2015 Building on the Best from the Cellars of Finance Paper, Robert H. Smith School Research Paper No. RHS 2422906, Available at SSRN: https://ssrn.com/abstract=2422906 or http://dx.doi.org/10.2139/ssrn.2422906

Gerard Hoberg (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

Nitin Kumar

Indian School of Business (ISB), Hyderabad ( email )

India

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
+1 410 234 4532 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
852
Abstract Views
4,771
rank
31,520
PlumX Metrics