Managerial Ability, Open-End Fund Flows, and Closed-End Fund Discounts
Previous empirical research documents a convex cross-sectional relationship between past performance and mutual fund flows. Using a dynamic rational expectations equilibrium model with endogenous portfolio management, I propose a new economic theory to explain the convex flow-performance relationship. The proposed theory highlights the importance of incorporating active portfolio management into economic analysis of fund flows. With higher managerial ability a fund manager can generate higher returns through some investment opportunities. At the same time the manager enhances a funds performance further by optimally shifting the asset mix toward the profitable opportunities. In anticipation of the increased investments as well as the higher returns, fund investors rationally invest a disproportionately large amount of money into the fund. A quantitative analysis shows that the fully calibrated model accounts for several empirical regularities of mutual funds. Furthermore, using the same model, I develop a unified theory of open-end fund flows and closed-end fund discounts, and show that by the above economic argument the model predicts a convex premium-performance relationship in the case of closed-end funds. I empirically test and confirm this novel prediction.
Mutual Funds Open-End Fund Flows Closed-End Fund Discounts Managerial Ability Asymmetric Information
Bin Wei
Fuqua School of Business,Duke University,Durham,NC 27708-0120
国际会议
成都
英文
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）