Beyond the Lines: Deciphering Private Information from Fund Managers' Narratives

44 Pages Posted: 2 Dec 2020 Last revised: 20 Jul 2023

See all articles by Sean Cao

Sean Cao

University of Maryland - Robert H. Smith School of Business

Baozhong Yang

Georgia State University - Robinson College of Business

Alan L. Zhang

Florida International University (FIU)

Date Written: July 20, 2023

Abstract

We identify private information from mutual fund managers' narratives in their letters to shareholders with the help of large language models (LLM). Informed funds deliver superior abnormal returns and are more likely to receive an upgrade in Morningstar ratings. Informative textual disclosure contains more forward-looking discussions and is associated with more modest and cautious managers. We find evidence that investors recognize such qualitative information and reward funds that disclose private information with greater flows. Furthermore, textual disclosure is particularly informative and valuable for hard-to-evaluate funds, suggesting the importance of qualitative disclosure in complementing quantitative information for mutual funds.

Keywords: Machine Learning, Large Language Models, Mutual Fund Performance, Disclosure, Textual Analysis, Shareholder Letters, Fund Flows

JEL Classification: C45, G11, G14, G23

Suggested Citation

Cao, Sean S. and Yang, Baozhong and Zhang, Alan L., Beyond the Lines: Deciphering Private Information from Fund Managers' Narratives (July 20, 2023). Available at SSRN: https://ssrn.com/abstract=3713966 or http://dx.doi.org/10.2139/ssrn.3713966

Sean S. Cao

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Baozhong Yang

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States
404-413-7350 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://sites.google.com/view/baozhongyang/

Alan L. Zhang (Contact Author)

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

HOME PAGE: http://www.alanlzhang.com

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