Investing in the ‘New Economy’: Mutual Fund Performance and the Nature of the Firm

Although stock returns of intangibles-intensive firms tend to exceed physical assets-intensive firms, risk-adjusted returns of actively managed mutual funds significantly decrease (increase) with their portfolios’ exposure to intangibles-intensive (physical assets-intensive) firms. Fund managers tend to exhibit skill when they focus on difficult-to-value (e.g. small) firms, except when the firms are intangibles-intensive. In sum, the worst-performing funds are in areas of the market which seem to offer ample opportunities for professional investors due to exacerbated mispricing. The negative impact of investments in intangibles-intensive firms on fund performance appears to be driven by extrapolation bias and decreases with learning from experience

Geography, Informal Information, and Mutual Fund Portfolios

This paper explores how informal information channels impact the investment performance of mutual funds. We measure the strengths of two specific information channels linked to the geographical location of fund managers: information transfers among managers (fund-fund links), and between fund managers and the companies in which they invest (fund-company links). We analyze the marginal impact of these information channels on abnormal returns generated from stock holdings. We find that each channel increases investment performance in the absence of the other. Investment performance is reduced when the two information channels act in combination, an effect that appears to be driven by “crowded trades” that reduce profitability. The stock selections that are associated with the presence of one information channel but the absence of the other earn positive future returns. Overall, our results show that the economic benefits of informal information channels depend critically on the nature of their interactions

Three Essays on the Role of Information Networks in Financial Markets

Based on previous evidence that there are information heterogeneities in capital markets, three essays including empirical frameworks for examining the information processes that impact portfolio investments and corporate investments was proposed. The first essay considers information channels among mutual fund managers (fund-fund networks), and between holding companies and fund managers (fund-company networks). Results show that (1) fund-fund (fund-company) information networks help in generating positive risk-adjusted returns from holdings in absence of fund-company (fund-fund) networks; (2) fund-company networks create information advantage only when the networks are relatively exclusive. Superior networks seem to pick stocks which outperform beyond the quarter. The second essay examines mutual fund managers tendency to deviate from the strategies of their peers. Results indicate a significantly negative relationship between the managers deviating tendency and fund performance, suggesting that the average fund manager is more likely to make erroneous decisions when they deviate from their peers. The third essay investigates the determinants of target choices in corporate acquisitions. Results reveal the influence of various factors, including information asymmetries, which may drive this behavior, including economic opportunities, anti-takeover regimes, competitive responses to other managers, and acquirers size and book-to-market ratios.Ph.D.Committee Co-Chair: Eun, Cheol; Committee Co-Chair: Thursby, Marie; Committee Member: Clarke, Jonathan; Committee Member: Jayaraman, Narayanan; Committee Member: Li, Haizhen