Pessimistic Fund Managers
35 Pages Posted: 2 Feb 2017 Last revised: 29 Apr 2017
Date Written: March 1, 2017
This paper exams managers’ sentiment revealed in their letters to shareholders and its relation with their future performance, focusing on closed-end funds (CEFs). The result shows that the pessimistic tone in managers’ letters to shareholders predicts superior future risk-adjusted returns and narrows CEFs’ discount. The result is robust to controlling for potential mean-reversion pattern of investment performance. An increase of pessimistic tone by one standard deviation leads to a 3.6% ~ 5.0% increase of risk-adjusted NAV return per annum. The predictive power is more pronounced when the stock market is expected to be less volatile in the future. Our result suggests that investment managers’ sentiment revealed in accounting disclosure documents might contain useful information for future performance.
Keywords: Managerial Skills, Textual Analysis, Mutual Fund Disclosure, Fund Performance
JEL Classification: M40, G14, G19
Suggested Citation: Suggested Citation