Is it Who You Know or What You Know? Evidence from IPO Allocations and Mutual Fund Performance

Abstract

Consistent with Chevalier and Ellison (1999), we find that mutual fund managers with degrees from elite universities tend to outperform their counterparts from less elite universities. The abnormal performance can be characterized as “fast performance,” the stocks they select realize excess returns only in the quarter the stocks are purchased, and this fast performance is largely due to the elite graduates having better access to IPO underwriters. A strategy of buying mutual funds in months when they are connected to underwriters scheduled to issue IPOs generates significant excess returns. The mutual funds generate insignificant excess returns in months with no IPO connections.

Keywords: Social connection, IPO allocation, mutual fund performance, mutual funds

JEL Classification: G23, G24