This paper uses a large sample containing the complete return histories of 2300 UK openended mutual funds over a 23-year period to measure fund performance. We find some evidence of underperformance on a risk-adjusted basis by the average fund manager, persistence of performance and the existence of a substantial survivor bias. Similar findings have been reported for US equity mutual funds. New...

This paper explores the role of social networks in the portfolio allocation decisions and performance of mutual fund managers. Using a novel dataset, I examine the past employment networks of both mutual fund managers and firm executives. I find that fund managers place larger bets and perform significantly better on firms when they are connected to a senior executive of that firm through overl...

This paper proposes and tests a flow-based explanation for three important empirical findings on return predictability – the persistence of mutual fund performance, the “smart money” effect, and stock price momentum. Since mutual fund managers generally scale up or down their existing positions in response to investment flows, and since the portfolios of funds receiving capital generally differ...

This paper examines the equilibrium consequences of strategic behavior of mutual fund managers who withhold information about their funds and their managerial ability. We show that under this information asymmetry, low skills in the industry can result in a growth of passive management. A separating equilibrium in which skilled managers actively manage funds arises only if their compensation de...

I document a positive relationship between excess cash holdings of actively managed equity mutual funds and future fund performance. The difference in returns of portfolios of high and of low excess cash funds amounts to over 2% annually, or approximately 3% after standard risk adjustment. I study whether this difference in performance can be explained by the differences in managerial stock sel...

The average level and cross-sectional variability of fund alphas are estimated from a large sample of mutual funds. This information is incorporated, along with the usual regression estimate of alpha, in a (roughly) precision-weighted average measure of individual fund performance. Substantial ‘‘learning across funds’’ is documented, with significant effects on investment decisions. In a Bayesi...

Mutual funds change their risk levels significantly over time. Risk shifting might be caused by ill-motivated trades of unskilled or agency-prone fund managers who trade to increase their personal compensation. Alternatively, risk shifting might occur when skilled fund managers trade to take advantage of their stock selection and timing abilities. This paper investigates the performance consequ...

Should individuals include actively managed mutual funds in their investment portfolios? They should if and only if the result of active management is superior performance due to skill. This paper employs a previously ignored statistical technique to detect whether skill drives the superior performance of some mutual funds. This technique, the generalized binomial distribution, models a sequenc...

We find that the performance distribution of the individual stocks inside a mutual fund can toss out additional information about the fund manager’s stock picking ability. When a mutual fund contains mostly mediocre-performing stocks but one super-performer, it is likely that the overall fund performance, albeit good, would be due to luck. On the other hand, a fund that has a larger number of a...

Article history: Received 5 May 2010 Received in revised form 1 February 2012 Accepted 1 March 2012 Available online 8 March 2012 We examine the ability of oneand two-factor regime switching models to describe US, developed, and emerging market mutual fund returns. We find that a two-factor fixed transition probability model adequately describes the multivariate series of mutual fund returns wi...