Real-Time Predictability of Mutual Fund Performance Predictors [SSRN]
Conference Presentations: Asian Finance Association (2021), Northern Finance Association PhD Symposium (2021), China Finance Review International Conference (2021), New Zealand Finance Meeting (2021), World Finance & Banking Symposium (2021), American Finance Association PhD Poster Session (2022)
Abstract: Researchers have discovered abundant evidence that mutual fund performance is predictable in the cross-section ex post. This paper studies the ex ante predictability of 12 well-known predictors for fund performance from investors’ perspective. Exploiting two types of fund picking strategies with either rule-based approach or machine learning methods, I find that utilizing machine learning can potentially deliver superior real-time economic gains for investors with fund short-term performance being the primary driver underlying predictability. Moreover, using a novel approach to decomposing fund performance, I discover that investors’ flow response to predictor-implied performance exhibits strong variations across predictors.
The Leadership Effect: Evidence from the Fund Industry [SSRN] with Saurin Patel and Sergei Sarkissian
Abstract: The literature debates whether vertical (autocratic) or horizontal (democratic) policy making is better for institutional and country development. We approach this issue by examining how decision-making hierarchy in team-managed U.S. equity mutual funds affects their performance and risk taking. Employing a unique hand-collected dataset, we find that vertically-managed funds with lead managers earn 75 bps per year lower Fama-French five-factor alpha than their horizontally-managed counterparts. Moreover, vertically-managed funds hold less concentrated portfolios and have lower residual risk, thus showing signs of inferior security selection ability. Our findings support a horizontal decision-making structure in organizations functioning in an uncertain expectation environment.
Work in Progress
Factor Investing: A Liquidity Risk Perspective with Byungjin Hong