Superstar Fund Managers: Talent Revelation or Just Glamor?
43 Pages Posted: 15 Feb 2016 Last revised: 5 Oct 2017
Date Written: February 14, 2016
We examine the effect of mutual fund managers’ superstar status on their money flows, performance, and risk-taking behavior. Investors respond positively to fund managers who win a prominent fund-manager-of-the-year award based on proven long-term record. While award-winning managers generate positive risk-adjusted performance diseconomies of scale apparently diminish such outperformance. Award-winning managers do not take on increased risks or trade more actively as implied by attention-induced incentives. Our results are consistent with Berk and van Binsbergen’s (2015, 2017) rational expectations equilibrium argument that skill exists among superstar fund managers and the attendant inflow of investor capital subsequently arbitrages away such outperformance.
Keywords: Keywords: Mutual funds, Fund manager awards, Fund flows, Performance, Risk taking
JEL Classification: G23, G28
Suggested Citation: Suggested Citation