Mutual Fund Competition, Managerial Skill, and Alpha Persistence

Hoberg, Gerard; Kumar, Nitin; Prabhala, Nagpurnanand

doi:10.2139/ssrn.2422906

Cited by 18 publications

(29 citation statements)

References 99 publications

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“…Pakistan mutual fund is a small market in terms of number of investors and there are less avenues for fund managers to exploit excess returns. Hoberg et al (2016) argue that outer performance over competitors is a signal of skill. Increased competition makes it difficult for fund managers to outclass other active managers.…”

Section: Resultsmentioning

confidence: 99%

“…Gottesman and Morey (2007) find connection between persistence and expense ratio. Hoberg, Kumar, and Prabhala (2016) find that persistence is more profound when mutual funds face less competition from its rivals.…”

Section: Introductionmentioning

confidence: 89%

“…They argue that persistence phenomenon is conditioned upon the sample period used, one possible reason for the inconclusive results previously reported in literature. Hoberg et al (2016) investigate how competition among the funds affect the persistence? They use 3390 open-end US equity funds over the period 1980 to 2012.…”

Section: Literature Reviewmentioning

confidence: 99%

See 2 more Smart Citations

Do mutual funds remain persistent? Evidence from Pakistan

Maroof¹,

Javid²,

Badshah³

2017

SAJMS

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This study investigates the performance persistence of 78 mutual funds of Pakistan for the period 2009-2015. The sample period is divided into two sub-periods, based on movement of KSE 100 index closing value. A skilled manager is a manager who can outclass the market consistently during both sub-periods. This study first estimates outer performance, selectivity, market timing and volatility timing skills using Capital Asset Pricing Model. The results show absence of persistence regarding Jensen alpha, selectivity and market timing skill. The study is making novel contribution by investigating persistence in volatility timing skill. The result reveals week evidence of persistence for volatility timing skill under four-index model.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 89%

See 1 more Smart Citation

Do mutual funds remain persistent? Evidence from Pakistan

Maroof¹,

Javid²,

Badshah³

2017

SAJMS

View full text Add to dashboard Cite

show abstract

“…Decreasing-returns-to-scale is a common assumption in asset management models (see, e.g., Berk and Green, 2004;Pástor and Stambaugh, 2012). Furthermore, inclusion of the parameter is supported by empirical evidence (see, e.g., Chen et al, 2004;Fung et al, 2008;Pollet and Wilson, 2008;Hoberg et al, 2016;Pástor et al, 2015). A parameter of η near zero (near ∞), represents almost perfectly inelastic (elastic) excess returns with respect to AUM.…”

Section: Base Modelmentioning

confidence: 91%

Moral hazard in active asset management

Brown

Davies

2017

Journal of Financial Economics

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We consider a model of active asset management in which mutual fund managers exert unobservable effort to earn excess returns. Investors allocate capital to actively managed funds and passively managed products. In equilibrium, investors are indifferent between investing an additional dollar with an active manager or with a passively managed product. As passively managed products become more attractive to investors, active managers' revenues from portfolio-management services fall, reducing their effort incentives. More-severe decreasing-returns-to-scale are also associated with reduced incentives and increased moral hazard. Performance-based fees and holdings-based data are all unlikely to mitigate moral hazard.

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“…The equilibrium value of α can also vary across funds. For example, α can vary across investment styles if the degree of competition among funds varies across styles (e.g., Hoberg, Kumar, and Prabhala, 2018).…”

Section: Fund Characteristics In Equilibriummentioning

confidence: 99%

Fund Tradeoffs

Pástor¹,

Stambaugh²,

Taylor³

2017

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We study tradeoffs among active mutual funds' characteristics. In both our equilibrium model and the data, funds with larger size, lower expense ratio, and higher turnover hold more-liquid portfolios. Portfolio liquidity, a concept introduced here, depends not only on the liquidity of the portfolio's holdings but also on the portfolio's diversification. We also confirm other modelpredicted tradeoffs: Larger funds are cheaper. Larger and cheaper funds are less active, based on our new measure of activeness. Better-diversified funds hold less-liquid stocks; they are also larger, cheaper, and trade more. These tradeoffs provide novel evidence of diseconomies of scale in active management.1979 through 2014. When we estimate the cross-sectional regression of portfolio liquidity on fund size, expense ratio, and turnover in our panel dataset, we find strong support for the model. All three slopes have their predicted signs and are highly significant, both economically and statistically. Funds that are larger, less expensive, and trade more tend to hold more-liquid portfolios, as the model predicts. According to our model, these tradeoffs are induced by diseconomies of scale. Intuitively, a large fund optimally reduces its trading costs by trading less and holding a more-liquid portfolio.A fund's size trades off negatively with its expense ratio in our model. As in Berk and Green (2004), a fund's fee revenue is determined by its skill, so charging a higher expense ratio simply dictates a smaller fund. We find strong evidence of this tradeoff-a large negative correlation between fund size and expense ratio-in the data.

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Mutual Fund Competition, Managerial Skill, and Alpha Persistence

Cited by 18 publications

References 99 publications

Do mutual funds remain persistent? Evidence from Pakistan

Do mutual funds remain persistent? Evidence from Pakistan

Moral hazard in active asset management

Fund Tradeoffs

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