Working papers
Coordinated Betting by Multi-Fund Managers (Job Market Paper)
Abstract: I study the investment behaviour of managers that manage multiple mutual funds simultaneously. Consistent with incentives in the mutual fund industry to generate outperformance, I find that multi-fund managers engage in an investment coordination strategy by placing negatively correlated investment bets across their funds. This strategy increases the probability that at least one fund will generate extreme positive performance, though, it does not maximize the performance of each individual fund. I also find that these coordinating multi-fund managers take on more idiosyncratic risk, have more active portfolios, trade more aggressively, and invest more in lottery-like stocks. This risk-taking behavior is consistent with coordinating multi-fund managers taking larger investment bets in order to make the potential return pay-offs of the individual funds more extreme. All in all, my paper documents a new potential agency problem in the mutual fund industry caused by the organizational structure at the manager level.
Presentation: Financial Management Association European Conference 2021, Financial Management Association Annual Meeting 2020, Midwest Finance Association Conference and Doctoral Symposium 2020, New Zealand Finance Meeting Doctoral Symposium 2019, Conference on Theories and Practices of Securities and Financial Markets 2019, Erasmus University PhD Seminar 2019
Mutual Fund Penetration through Cross-Subsidization
Abstract: In the competitive mutual fund industry, it is well established that fund proliferation is a key driver for fund families to flourish. This study documents that mutual fund families strategically cross-subsidize new funds in market segments they have not operated in before, at the expense of other more established funds in the family. The cross-subsidization pattern is evident in fund returns, and is supported by holdings-based analyses based on cross-trades and IPO allocations. Our results suggest that the performance of a new fund in a new market is enhanced by on average 0.73% per year, via cross-subsidization from other funds in the family, which give up 0.20% per year of their performance. In families with lower ability, as witnessed by a poor track record and in younger families, these numbers are substantially higher.
Presentation: Finance Forum PhD Consortium 2020, Erasmus University Rotterdam 2018
Abstract: Mutual fund managers who are assigned to manage multiple funds simultaneously have the option to prioritize certain funds over others. I find that these managers pay the most attention to their smallest fund at the cost of their larger funds, because it is easier to generate high performance with smaller funds and outperformance is heavily rewarded in the mutual fund industry. My empirical analyses show that managers generate 0.35% higher yearly risk-adjusted performance with their smallest fund compared to their other funds. Consistent with preferential attention allocation, this relative outperformance is largely due to the managers taking on more active investment positions, trading more heavily, and leading the institutional crowd more in terms of trades with their smallest fund.
Presentation: Asian Finance Association Annual Meeting 2021, International Conference of the French Finance Association 2021, Erasmus University PhD Seminar 2021