Can Mutual Fund Investors Distinguish Good from Bad Managers?

Dyakov, Teodor; Verbeek, Marno

doi:10.1111/irfi.12187

Cited by 3 publications

(14 citation statements)

References 84 publications

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“…Additional tests revealed similar results for the Jensen's alpha. These results are partly consistent with those of Dyakov and Verbeek (2019) and Kacperczyk et al (2008) for the United States and expand the conclusions of Brazilian articles that have only considered the information available in the databases to select stock funds, by indicating, as would be expected, that investors consider a broader set of information for their decisions (Matos et al, 2015;Mendonça et al, 2017;Oliveira & Souza, 2015;Silva et al, 2018). The rest of the article is composed of the review of the literature on which the study is based, followed by the methodology section, which describes how the managers and stock funds that compose the sample were chosen, as well as detailing the variables employed.…”

Section: Introductionsupporting

confidence: 82%

“…The literature offers some studies that indicate potential motivators for changes in capital allocation flows, such as the fund's historical performance (Gruber, 1996;Ippolito, 1992;Sirri & Tufano, 1998) and size (Siri & Tufano, 1998). Dyakov and Verbeek (2019) extended the work of Ippolito (1992) and Kacperczyk et al (2008) by studying the relationship between the dynamic of the capital allocation flow in actively managed stock funds in the United States and their return gap. A stock fund's capital allocation flow is the result of its inflows and outflows.…”

Section: Return Gap and Capital Allocation Flowmentioning

confidence: 99%

“…In summary, there are several variables obtained from directly observable parameters and historical datasets associated with fund performance to try to identify what would be relevant in the investor's decision-making process, the main ones being: longevity; AUM; charging incentive fees; historical performance, risk-adjusted or not; and manager independence. However, Dyakov and Verbeek (2019) and Kacperczyk et al (2008) state that these parameters would not be sufficient to completely understand the investor's decision-making process. This article thus extends this literature by assessing whether there are other aspects that are not directly observable, represented by the return gap, that can contribute to better stock fund selection decisions.…”

Section: Determinants Of Brazilian Stock Fund Performancementioning

confidence: 99%

“…The stock fund's flow was calculated in the same way used by Dyakov and Verbeek (2019) and Kacperczyk et al (2008). Equation 1 shows that the percentage variation in the capital allocation flow for fund i in quarter t (Flow i,t ) is the difference between the stock fund's AUM at the end of the quarter and the AUM at the start of the quarter adjusted by the fund's return (R i,t ).…”

Section: Capital Allocation Flow and Return Gap Calculationsmentioning

confidence: 99%

“…Investors may have information about a fund's future performance that is not contemplated in the parameters that are directly observable by means of public or historical data, as their decision-making process may occur in a more complex way than through merely analyzing these observable parameters, and it may contemplate qualitative and subjective aspects (Dyakov & Verbeek, 2019). The return gap of Kacperczyk et al (2008) captures the impact of fund mangers' actions and decisions that are not observable by means of historical data and other public information.…”

Section: Introductionmentioning

confidence: 99%

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Selection of stock funds using information that is not observable or measurable

Amaral

Leal

2021

Rev. contab. finanç.

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The aim of this paper is to investigate whether the flows and the future returns of stock funds are related to investors’ unobservable information. This article extends the knowledge about investment decisions regarding stock funds and considers a representation of unobservable information that until now has not been contemplated by the Brazilian literature. Understanding decisions to invest in stocks has become more important since the fall in interest rates and migration toward equity investments. The use of unobservable information for making investment decisions is important when choosing stock funds and the return gap could be added to the list of information offered to investors. The return gap measures the value added by managers in relation to the most recently disclosed complete lagged portfolio and was calculated every month for every asset in the portfolios of every fund in the sample disclosed with a three-month lag. A parsimonious sample was used of 22 actively managed funds in the period from January of 2010 to December of 2018, containing one from every one of the 22 biggest independent Brazilian managers, because it is laborious to calculate this metric. The return gap represents unobservable information about a fund. Investors that direct their capital toward stock funds with a higher historical return gap tend to obtain higher returns in out-of-sample tests, suggesting persistence of the returns of these funds and supporting the importance of unobservable information. Investors that directed their capital toward funds with lower historical return gaps could also obtain positive alphas in some cases, indicating that some managers were neglected. The fund flow results were inconclusive.

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Section: Introductionsupporting

confidence: 82%

Section: Return Gap and Capital Allocation Flowmentioning

confidence: 99%

Section: Determinants Of Brazilian Stock Fund Performancementioning

confidence: 99%

Section: Capital Allocation Flow and Return Gap Calculationsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Selection of stock funds using information that is not observable or measurable

Amaral

Leal

2021

Rev. contab. finanç.

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Risk factors, uncertainty, and investment decision: evidence from mutual fund flows from India

Nedumparambil

Bhandari

2022

Ind. Econ. Rev.

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Asset pricing theories provide an understanding of the risk factors that determine the price of assets. The identification of risk factors assists investors in seeking out profitable investment opportunities. The difficulty in observing how investors identify such opportunities and how they react to it has largely restricted the literature from determining the factors that matter to an investor. There is a paucity of empirical studies that give insight into the investment decision-making process of an investor. Some of the recent studies that seek to fill this gap have used mutual fund flows to infer which asset pricing model investors use. The fund flows are used as a measure of investors’ response for the identification of a positive net present value investment opportunity. These studies suggest that the Capital Asset Pricing Model (CAPM) is closest to the asset pricing model used by investors in the US market. Taking this literature forward, we enquire whether investors from Indian markets exhibit a similar pattern when making investment decisions. Using the fund flows to actively managed equity schemes, we have investigated the risk factors that matter for mutual fund investors in India for the period from April 2006 to December 2019. We use alternative performance measure and then evaluate the sensitivity of fund flows to each of the performance measures. Our results suggest that investors assess the performance of competing investment opportunities based on naïve measures. Further, though uncertainty has a negative impact on fund flow, the flow–performance relation is not sensitive to the level of uncertainty.

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Fund Ratings of Socially Responsible Investing (SRI) Funds: A Precautionary Note

Budsaratragoon

Jitmaneeroj

2021

Sustainability

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We examine fund ratings of socially responsible investing (SRI) equity funds in emerging and developed markets by validating the assumptions of the equally weighted U.S. News mutual fund scorecard and the causal interrelations among its rating agencies—Morningstar, Lipper, Zacks, CFRA and TheStreet—for improvement priorities. In so doing, we apply a novel interdisciplinary methodology including cluster analysis, classification analysis, partial least squares structural equation modeling and importance performance analysis. We find evidence against the U.S. News assumptions, as individual rating agencies have unequal effects and exhibit the causal relationships among one another. We suggest emerging (developed) market fund managers allocate their resources—which are often limited—with the first priority to improving fund ratings of CFRA (Zacks), followed by Zacks (CFRA), TheStreet (Lipper), Lipper (Morningstar) and Morningstar (TheStreet). The positive causal relationships among rating agencies indicates that investors consider multiple rating agencies of the U.S. News for investment decisions, rather than simply use any single one of these rating agencies or their equally weighted aggregation. Interestingly, we find disagreement among rating agencies, with Zack (TheStreet) displaying rating deflation for emerging (developed) market funds. Disagreement among rating agencies may increase the monitoring effort of fund managers who usually “shop” for additional ratings in the hope of maximizing their average ratings.

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Can Mutual Fund Investors Distinguish Good from Bad Managers?

Cited by 3 publications

References 84 publications

Selection of stock funds using information that is not observable or measurable

Selection of stock funds using information that is not observable or measurable

Risk factors, uncertainty, and investment decision: evidence from mutual fund flows from India

Fund Ratings of Socially Responsible Investing (SRI) Funds: A Precautionary Note

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