On the performance of mutual fund managers

Abstract

This study examines the performance of mutual fund managers using a newly constructed database that tracks 2,086 managers of domestic diversified equity mutual funds during their careers from 1992 to 1999. One never observes performance outcomes of managers and funds independently but only in conjunction with each other. This paper recognizes that fact and treats managers, funds, and “manager-fund combinations” as separate entities. I investigate performance from three perspectives. First, I examine performance persistence among managers and find some support for persistence. Second, to study the attribution of performance outcomes between managers and funds, I model abnormal performance as a Cobb-Douglas production function with manager and fund inputs, and develop a Bayesian framework to estimate it. Depending on one's prior beliefs I find that the fraction of abnormal returns contributed by the manager ranges from approximately 10 to 50 percent. The remaining 90 to 10 percent is contributed by the fund. Third, I investigate whether managers can attract fund flows on the basis of their past performance and find scarce evidence that they are able to do so. This study concludes that the fund is at least as important as the manager for performance.* *This dissertation includes a CD that is compound (contains both a paper copy and CD as part of the dissertation). The CD requires the following system application: Adobe Acrobat.