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Mutual Funds and Beyond

Paper Session

Saturday, Jan. 5, 2019 2:30 PM - 4:30 PM

Hilton Atlanta, Grand Ballroom C
Hosted By: American Finance Association
  • Chair: Lu Zheng, University of California-Irvine

Efficient Market Managers

Vladimir Atanasov
,
College of William and Mary
Christo Pirinsky
,
University of Central Florida
Qinghai Wang
,
University of Central Florida

Abstract

We examine the effect of academic exposure to the ideas of the Efficient Market Hypothesis (EMH) on the investment behavior of mutual fund managers. We show that managers who are more likely to be exposed to the EMH during their higher education exhibit a greater propensity to manage index funds. When working for active funds, exposed managers tend to hold portfolios with larger numbers of stocks and to deviate less from their investment objective benchmarks than their unexposed peers. Familiarity with the EMH induces active managers to take on more systematic risk. Although exposure to the academic ideas does not result in better performance, it helps managers generate capital flows, especially when their funds charge lower expense ratios and belong to larger multi-fund families.

Capital Redeployment in the Equity Market

Huaizhi Chen
,
Harvard Business School

Abstract

Payouts, in the form of dividends and buybacks, reached a height of almost a trillion dollars per annum in recent years. A large proportion of these dollars have been directly reinvested into the stock market. Drawing on data on mutual fund holdings, I show that capital repayments are accompanied by predictable excess returns in stocks connected to these payments, consistent with demand-driven price pressure. Due to the persistence of these capital return programs, abnormal returns accumulate over significant holding periods. Additionally, the exposure to capital redeployment by non-payout firms is associated with firm-level equity issuances. While firms exposed to high levels of capital returns negligibly increase their own buyback and dividend activities, they are able to persistently issue stocks through seasoned offers relative to other firms.

The Impact of Labor Mobility Restrictions on Managerial Actions: Evidence from the Mutual Fund Industry

Gjergji Cici
,
University of Kansas
Mario Hendriock
,
University of Cologne
Alexander Kempf
,
University of Cologne

Abstract

We examine how labor mobility restrictions such as non-compete clauses in employment contracts affect the behavior of employees. Using the mutual fund industry as a testing laboratory, we show that fund managers respond to increased enforceability of non-compete clauses by increasing their contribution to their employer’s profitability. They do so by improving their fund performance, while also increasing window dressing to attract new customers in order to increase fee revenue. Furthermore, the resulting change in incentives disciplines managers’ risk taking, as shown by noticeable reductions in their portfolio risk, portfolio deviations from their peers, and engagement in fund tournaments.

Unsuccessful Teams

Renee Adams
,
University of Oxford
Min Kim
,
University of Texas-Austin

Abstract

The consequences of failed teamwork may not be shared equally if more blame is allocated to team members for whom performance expectations are ex ante low---a phenomenon called attributional rationalization. Using the mutual fund industry as our laboratory, we provide evidence that attributional rationalization has important labor market consequences. Following fund closures, female team managers are more likely to exit the fund family and the industry than male team managers. This result is not driven by a gender gap in skill. Attributional rationalization helps explain why the fraction of female fund managers declined by 3.8% between 1999 and 2015.
Discussant(s)
Marcin Kacperczyk
,
Imperial College London
Susan Christoffersen
,
University of Toronto
Eric Zitzewitz
,
Dartmouth College
Lily Fang
,
INSEAD
JEL Classifications
  • G1 - General Financial Markets