The Predictability of Managerial Heterogeneities in Mutual Funds

51 Pages Posted: 27 Jun 2014

See all articles by Jun Huang

Jun Huang

Shanghai University of Finance and Economics

Yan Albert Wang

Auburn University

Date Written: March 1, 2014

Abstract

We empirically assess the role of managerial heterogeneities in mutual fund performance. Using a sample of Chinese mutual funds with relatively high managerial turnover rates, we follow the method in Abowd, Kramarz and Margolis (1999) to explicitly estimate the time-invariant heterogeneities among fund managers. We find that funds with higher manager fixed effects outperform those with lower manager fixed effects by 2% per year. We also find that fund performance improves after managers with higher fixed effects are hired. The results are consistent with the notion that manager fixed effects are associated with managerial innate ability or human capital, which in turn leads to better performance. Finally, we find that investors pay special attentions to these managerial attributes above and beyond the traditional performance measures, which provides some valid empirical evidence to the rational model of active portfolio management as in Berk and Green (2004).

Keywords: Manager Fixed Effect, Fund Performance, Fund Flows, Managerial Turnover

JEL Classification: G20, J24

Suggested Citation

Huang, Jun and Wang, Yan Albert, The Predictability of Managerial Heterogeneities in Mutual Funds (March 1, 2014). Available at SSRN: https://ssrn.com/abstract=2459777 or http://dx.doi.org/10.2139/ssrn.2459777

Jun Huang

Shanghai University of Finance and Economics ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Yan Albert Wang (Contact Author)

Auburn University ( email )

315 Lowder Hall
Department of Finance
Auburn, AL 36849
United States

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