The Allocation of Talent Across Mutual Fund Strategies

Buffa, A M and Javadekar, A The Allocation of Talent Across Mutual Fund Strategies. Working Paper. SSRN. (Unpublished)

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Abstract

We propose a theory of self-selection by mutual fund managers into stock "picking" and market "timing." With adverse selection, investors learn more easily about the skill of picking funds than of timing funds, since picking investments are less correlated than timing investments. The equilibrium allocation of talent across strategies is such that high-skill managers always pick, while low-skill managers time with positive probability. We empirically confirm the predictions that picking funds generate more value, are larger, and exhibit higher flow-performance sensitivity than timing funds, and that higher aggregate volatility induces a higher fraction of low-skill managers to time the market.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Javadekar, AUNSPECIFIED
Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Mutual funds, Investment strategies, Picking, Timing, Self-selection, Fund flows, Fund performance, Market volatility
Subjects: Finance
Depositing User: Ilayaraja M
Date Deposited: 16 Jul 2019 17:04
Last Modified: 16 Jul 2019 17:04
URI: http://eprints.exchange.isb.edu/id/eprint/1266
Publisher URL: http://dx.doi.org/10.2139/ssrn.3327638
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