Pessimistic Fund Managers

37 Pages Posted: 2 Feb 2017 Last revised: 2 Feb 2019

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

Hugh Hoikwang Kim

University of South Carolina, Darla Moore School of Business

Date Written: January 2019

Abstract

This paper examines the predictive power of investment managers’ sentiment revealed in their letters to shareholders for their future performance, using closed-end funds (CEFs) as a laboratory. We find that pessimistic tone in managers’ letters to shareholders predicts superior future risk-adjusted returns. The result is not driven by the 2008-2009 financial crisis and the subsequent recovery. We find that pessimistic CEFs are more likely to initiate profitable stock trades prior to stocks’ earnings announcements. Our result is consistent with the reference-dependent effort provision theory: fund managers exert more effort when they feel at a loss relative to their reference points.

Keywords: Textual analysis, Fund disclosure, Fund performance, Reference-dependent effort provision

JEL Classification: M40, G14, G19

Suggested Citation

Chu, Yongqiang and Kim, Hugh Hoikwang, Pessimistic Fund Managers (January 2019). Available at SSRN: https://ssrn.com/abstract=2909208 or http://dx.doi.org/10.2139/ssrn.2909208

Yongqiang Chu

Belk College of Business, UNC Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
7046877695 (Phone)

Hugh Hoikwang Kim (Contact Author)

University of South Carolina, Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
132
Abstract Views
1,126
rank
214,078
PlumX Metrics