Detecting superior mutual fund managers: evidence from copycats

We examine the ex ante ability of investors to identify superior mutual fund managers among the investor set likely most able, and with the greatest incentive to do so, their rivals. Identifying actual copycat funds via comparisons of trading in consecutive periods, we find little evidence to suggest that managers are able to detect superior funds. Copycats select funds with high prior performance and investment inflows, and the performance of the target fund reverses following copying initiation. If superior managers exist, our results suggest that the source of skill lies in private information obtained by these managers. These results are consistent with information models indicating that private, but not public, information can be profitabl

Past performance may be an illusion: performance, flows, and fees in mutual funds

Mutual funds report performance in the form of a holding period return (HPR) over standardized horizons. Changes in HPRs are equally influenced by new and previously reported stale returns which enter and exit the horizon. Investors appear unable to differentiate between the joint determinants, reacting with equal strength to both signals. Stale performance chasing is amplified for funds which promote performance via advertising and is more pronounced during periods of uncertainty in financial markets. Fund managers exploit this behavior by preferentially timing fee increases to align with periods of heightened investor demand resulting from stale performance chasing.Phillips gratefully acknowledges financial support from the School of Accounting and Finance at the University of Waterloo, PricewaterhouseCoopers and the Social Sciences and Humanities Research Council of Canada

Do hedge funds dynamically manage systematic risk?

Defining systematic risk management (SRM) skill as persistently low fund systematic risk, we find evidence of time varying allocation of hedge fund management effort across the business cycle. In weak market states, skilled managers focus on minimization of systematic risk via dynamic reallocations across asset classes at the cost of fund alpha and foregoing market timing opportunities. As markets strengthen, attention shifts to asset selection within consistent asset classes. The superior performance of low systematic risk funds previously documented arises due to the superior asset selection ability of managers in strong market states. Incremental allocations by investors arise due to this superior performance and not due to recognition of SRM skill.Phillips gratefully acknowledges financial support from the Social Sciences and Humanities Research Council of Canada via Insight Development Grant 430-2013-0824 and PricewaterhouseCoopers Fellowship

Does disclosure regulation work? Evidence from international ipo markets

10.1111/j.1911-3846.2012.01158.xContemporary Accounting Research301356-38