Hyperbolic Mutual Funds

52 Pages Posted: 10 Feb 2019

See all articles by Qianzhou Du

Qianzhou Du

Virginia Tech

Yawen Jiao

University of California, Riverside

Pengfei Ye

Virginia Tech

Weiguo Fan

Virginia Polytechnic Institute & State University - Department of Accounting and Information Systems

Date Written: January 2019

Abstract

This paper shows that hyperbolic language in mutual funds’ shareholder letters contains hidden yet important information for differentiating luck and skill. Hyperbolic shareholder letters predict improving alphas for funds with inferior past performance, suggesting that the transient past performance is driven by bad luck instead of lack of skill. Further analyses reveal that the information in hyperbole is primarily about funds’ market-timing ability, and is distinct from information in the tone or readability of the letters. Fund investors, however, do not fully understand the implications of hyperbole: unlucky funds with hyperbolic letters suffer from more outflows than other bottom performers.

Keywords: Mutual Fund Performance, Hyperbole, Skill, Luck, Textual Analysis

JEL Classification: G23, G41

Suggested Citation

Du, Qianzhou and Jiao, Yawen and Ye, Pengfei and Fan, Weiguo, Hyperbolic Mutual Funds (January 2019). Available at SSRN: https://ssrn.com/abstract=3325572 or http://dx.doi.org/10.2139/ssrn.3325572

Qianzhou Du

Virginia Tech

Blacksburg, VA 24061
United States

Yawen Jiao (Contact Author)

University of California, Riverside ( email )

Riverside, CA 92521
United States

Pengfei Ye

Virginia Tech ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

Weiguo Fan

Virginia Polytechnic Institute & State University - Department of Accounting and Information Systems ( email )

Pamplin College of Business
3007 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-6588 (Phone)

HOME PAGE: http://www.cob.vt.edu/acis/faculty/wfan/

Register to save articles to
your library

Register

Paper statistics

Downloads
45
Abstract Views
541
PlumX Metrics