apoorva javadekar - how does mutual fund reputation affect subsequent fund flows?

7/24/2019 Apoorva Javadekar - How Does Mutual Fund Reputation Affect Subsequent Fund Flows?

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How Does Mutual Fund Reputation Afect

Subsequent Fund Flows?

Apoorva Javadekar

Boston University

February 8, 2016

Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 1 ! "#


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$ntrodu%tion

Motivation I: Why Study Mutual Funds?

1

utual Funds: Important Vehicle of Investment

&ana'e 1 r *&utual +unds ons "0 U- e.uities /s 20 dire%t oldin's#6 o+ U- ouseold on utual +unds

2Understand Behavioral Patterns:

$nvestors learn about ana'erial ability trou' returns +und +los sed li't on learnin', in+oration pro%essin' %apa%itieset%

"Fund Flows Affect anagerial Risk

aking

30 +unds ana'ers paid as a o+ assets +lo patterns %an a++e%t risk takin'

ipa%ts on asset pri%esApoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 2 ! "#


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$ntrodu%tion

Motivation II: he !ape"

1!"isting #iterature:

-tudies link beteen +und per+oran%e and +und +los (+lo4s%edule)

Finds and rationali5es eviden%e o+ return chasing and convexity in +und+los

But not u% is knon about te iportan%e o+ per+oran%e istory(reputation)

2his Paper:

7plore te role o+ reputation +or +und +los

o istory up to t 1 a++e%t link beteen tie t per+oran%e andtie t 9 1 +los

:an e e7plain te eviden%e;

Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 " ! "#


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$ntrodu%tion

Role o# Reputation

Better understanding of managerial incentives:

i' reputation ettin' Fired) (?orana@ 1336, ?ostovetsky@2011)

$ sample:"0 o+ te +ired ana'ers belon' to botto 20

reputation rankBut %opensation too deterine te in%entives and +los a++e%t%opensation

$portant to kno o reputation a++e%t +los

But can reputation affect flows%

$nvestor etero'eneity investor %oposition is istory4spe%i+i%

subse.uent rea%tions to +und per+oran%e be%oe istory4spe%i+i%

Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 # ! "#

$ t d ti


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$ntrodu%tion

A$enda

piri%al viden%e

&odelestin' odelpredi%tions indata

ests to %e%kvalidity o+ odele%anis

Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 ! "#

$ t d ti


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$ntrodu%tion

%ite"atu"e Review

Return &hasing and flow conve"it$:$ppolito (1332), -irri u++ano (1338), :evallier llison (133)

#ack Performance Persistence:

:arart (133), Bollen Busse (200#) test sort and ediu terpersisten%e

Risk shifting due to conve" flows:

Bron, arlo, -tarks (1336), Basak (2012)

heoretical odels:

Berk & Green (2004): rationali5es la%k o+ persisten%e and return

%asin' siultaneously usin' de%reasin' returns and %opetitive %apitalsupplyLynch & Musto (2003): e7plains %onve7ity usin' ana'er repla%eent

Berk ' onks ()**+,: repeat losers ave insensitive +los tote le+t o+ +lo4s%edule


piri%al viden%e


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piri%al viden%e

&a"iables

Fund

Flows:

FL!i t C"it D"it1 (1 9 rit )E

it1 it" (1 9

r )ere rit denotes net o+ e7pense +und returns durin' tie t and

"itdenotes +und assets at te end o+ tie t

Fund Performance:

Ranks itin sae #invest$ent o%ective# based on ra net returns(-irri u++ano@ 1338)

Ranks based upon #'M*+pha# (Berk Binsber'en@ 201#)

Ranks are norali5ed to lie beteen D0, 1E interval

&urrent Performance (er,it ,: Based upon %urrent year t

Reputation (

reputeit,: Based upon year indo endin'

it %urrent ear t Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 ! "#

piri%al viden%e


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piri%al viden%e

Su''a"y Statistics

Reputation !"cess

LT!"p Front urn

LT-i.e Age

Ret

LTRatio #oad over n/ 0ears

#ow

Mean 400#2 400"8 001" 00"8 0886 0186 603"" 1268

Median 400#1 400" 001" 00#1 000 016 1220 12000 ed

Mean 4000" 40001 0012 00"8 01 012 1"2383 1""

Median 4000 4000# 0012 00#" 00 016 20800 12000

op

Mean 00#2 00#1 0012 00" 002 01 20133"1 1601#

Median 00"1 00"2 0012 00"8 020 010 "160 11000Full -ample

Mean 0000 0002 0012 00" 0#" 01 1"68062 102

Median 4000 40002 0012 00#2 00 0163 211# 12000


piri%al viden%e


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piri%al viden%e

(asic Re$"ession F"a'ewo")

FL!i t* 1

123ective:Asses ipa%t o+ reputation startin' at tie t on+lo4s%edule +or te period t 9 1

Regression:

j+2j+2

C a 9

j -j i t 9

j (-j i t reputeit1)

9( reputeit1) 9 contro+sit 9 it*1

-j i t denotes duy +orth

.uantile o+ er,itRe'ression o+ t 9 1 +los on tie t re%ent per+oran%e 'ivenreputation startin' at tie t

Re'ression +or ea% .uantile o+ er,it to a%%ount +or non4linearity(:evallier llison@ 133)


piri%al viden%e


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piri%al viden%e

Re$"ession ,utput: Fund Flows

Panel A: Raw

Returns

00"#(0006)

008#(000)

012#(000)

02#1(0010)

00"(0006)

0030(000)01"0

(000)02#6(0010)

0202(001")

Q2t Q1t

Q"t Q1t

Q#t Q1t

Qt Q1t

repute t 1

repute t 1 -Q2t Q1t .

reputet 1 -Q"t

Q1t . reputet 1 -Q#t

Q1t . reputet1 -Qt

Q1t .

001"(0011)

00"2(0012)

000(001#)

010(0018)

008"(001)

00#"(0013)

0108

(0021)

01#3(0026)0261(00"")

$nter%ept 006(00")

4006

(00")

40008(00")

AdG R2 016 0208 021

Results


piri%al viden%e


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p

Main Results Re'ression able

Result 4:

-i'ni+i%ant return chasing e,,ect i'norin' reputation

intera%tions and even a+ter %ontrollin' +or reputation

Result ):

.eturn chasing e,,ect is redu%ed by ore tan al+ a+terin%ludin' reputation intera%tions

Result 5: All te intera%tion ters are lar'e and si'ni+i%ant

-i'ni+i%ant C (-j -1|repute C high) > (-j -1|repute C +o/ )


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p

Flow/Schedule 0"aph


piri%al viden%e


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p

12a'ple

Best Fund:

-t C 1 and reputet1 C 0.30

7orst Fund:

-1t C 1 and reputet1 C 0.10

HFL! FL! (Best) FL! (!orst ) C #0.8

Break8Up:

-ource &ontri2ution

HFL! Iue to Return :asin' ++e%t 10

HFL! Iue to Reputation ++e%t 66

HFL! Iue to $ntera%tion ++e%t 2"0

Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 1" ! "#

piri%al viden%e


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Robustness 3hec)s

'hange in Market 1hare as dependent variable (-pie'el an'@2012) Result

Results valid a%ross a'e and si5e%ate'ories

Result

Results valid even i+ re%ent per+oran%e is %oputed over alon'erori5o

n

Result

Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 1# ! "#

piri%al viden%e


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ode

l


&odel


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Set/4p

anagerit unknon skill and 'enerates 'ross returnas

. t C 9 tit

t 0, 2

. .

&onve" cost of active management:

' (x )

C x 2

9et Return Process:

rt C ht1.t , . (h t 1 "t

"t1

1)2 .

ere ht1 denotes a%tively ana'ed sare o+ assets durin' tiet


&odel


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Investo"s and (elie#s

Investors:

Unit ass o+ risk neutral investors

+ra%tion o++/ays ttentive (AA)

1 +ra%tion ccasiona++y ttentive (KA)

a% period, (attention|) C < 1ave in+initely deep po%kets

Beliefs A2out anagerial -kill:

Atte end o+ tie t

t

2

t ( , )

t () C t (. t*1) C

t


&odel


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Mechanis' I

!uili2rium &ondition 7hen

C 1:

(Berk >reen@ 200#)

t (rt*1|ht, t )C0

Ieep po%kets ensure tat +und re%eive re.uired in+los

Full attention ensures tat no investor invests in negative

ana'er

!uili2rium &ondition 7hen

< 1:

t (rt*1|ht, t )50

Ieep po%kets ensure tat no positive e7pe%ted L=/ proGe%t e7ists

$nattentive investors %apital out+los %ould be less tan re.uired toattain 5ero L=/ %ondition

Inattention

C Kver4-i5ed +unds relative to %opetitive

ben%arkApoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 18 ! "#

&odel


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Mechanis' II

In euili2rium:


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Solution With < 6

Initial Investor &omposition:

A investorMs onersip at t C

0 is0 C

9 (1 )s

F

%Attentive ra%tion $n

xonoy

&ompetitive -i.e and Flows: "t7

satis+ytt Drt*1|ht, "7E C 0

and re.uired +los

e7

7

t C "t "t1(1 9 rt )

Attentive

&apital:

5t C

t1

t19 (1 )

As

ttentive Fra%tion

Nitin

xFund

t1 t" (1 9 r )


&odel


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Investo" 3o'position

1utflows t < t1$+ +und as enou' attentive %apitalO

t1

AAMs :ontribution o Kut+los C > t1 9 (1t1)

t1

t$+ 5t < |e7

| t C 0 as every attentive investor li.uidates

Inflowst > t1

AA4type %ontribute0 o+ ne %apital and out+los redu%e 0 is

upper liit o+t1

t is a ei'ted avera'e o+0 andt1

t (t1, 0)

Persistent outflows ;igh fraction of Inattentive

Investors


&odel


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%ea"nin$ and Fund Flows

Belief

Updates:

t C t1 9h

. 2t1

22

t1 9

..rt t1(rt )

.

t1

s

+

x

t 1

Ht bi''er +or over4si5ed +unds as t1(rt ) < 0

t1und Flows:


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Fund Flows 3ontinued

C Flatimited 1utflows:


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Flows With &a"ious !a"a'ete" &alues

Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 2# ! "#

&odel


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!e"#o"'ance !e"sistence

Reputati

on


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3alib"ation 12e"cise

Paramet

er

Valu

e

-ourc

e

f

low

t +

.

t 1

.

2

2 2

t1*

low -1 low . * low

high -1 high . * high

16 Iata (in%ludin' loads)

03" -ee belo003 Berk, >reen (200#)018 &oent Fittin'0#3 &oent Fittin'

-i.e


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12pe"i'ents o &alidate Model Mechanis'

;eterogeneit$ in Investors ;eterogeneit$ in

Flows 7hat events damp this heterogeneit$%

anagerial Replacement:edia nes, and oterso+t in+oration

i'er investor attention even +ro oterise inattentiveinvestors

dapened investor etero'eneity

#arge Front #oads


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3oncludin$ Re'a")s

Return chasing

'ets stron'er it reputation

=ersisten%e in poor per+oran%e +or lo4reputation

+unds

-iple odel it inattentive investors e7plains te etero'eneity in+lo4s%edule

$nterestin' to study risk si+tin' %onditional on reputation


&odel


29/34

hank

0ou


&odel

R i With 3h i M ) t Sh


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Re$"ession With 3han$e in Ma")et Sha"e

Panel A: Raw

Returns

Panel B: &AP 8

Alpha00#2(0026)

010(00"2)

028(00"")

010(00#6)

0061

(0026)01"1

(00"6)

026(00")

0#30(00#)

Q2t Q1t

Q"t Q1t

Q#t Q1t

Qt Q1t

reputet1

reputet1 -Q2t Q1t .

reputet1 -Q"t

Q1t . reputet1 -Q#t

Q1t . reputet 1 -Qt

Q1t .

4012(00#6)

40186(003)

4018(001)

4016(000)

400#8(0060)0"26

(0038)0(0163)

0811(012#)

1"03

(0186)

4008

(00##)401"0(001)

40110(00")

401#3

(0063)4002"(0066)023

(0088)01(0166)

0"(0121)

113(0186)$nter%ept 40183

(02#0)4021(022")

40220(02"1)

40"0(0221)

AdG R2 0062 0088 00 00

Ba%k to Robustness

Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 "0 ! "#

&odel

A A d Si R b t With R R t


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A$e And Si9e Robustness With Raw Retu"ns

Panel A: Age

Bins

Panel B: -i.e

Bins

Q2t Q1t

Q"t Q1t

Q#t Q1t

Qt Q1t

reputet 1

reputet 1 -Q2t Q1t .

reputet 1 -Q"t


Q1t . reputet 1 -Qt

Q1t .

0oung

4

000#(002#)0023

(0026)00

(00"0)01

(00"3)

00(0028)

00#2(00"8)0126

(00#2)01(002)

0268(0066)

0oung

*

0011(0012)

00"(001")

00#6(001#)

008(0013)

003(0018)

00#8

(0021)0083

(002#)

012(0026)

02"(00"6)

-mall

4

40001(001)0016

(001)00#1

(002")0116(0028)

006(002#)008

(00"1)

016#(00"6)

021#(00")

0"2"(00)

-mall

*

00"#(0016)00#(001)00#8

(001)0086(0021)

003"(0020)

001#(0026)

000(0028)

0122(0028)

02#6(00")

$nter%ept 0036(0122)

4006(00"3)

002#(00)

400##(00#1)

AdG R2 0203 02"# 0181 0268

Ba%k to Robustness


&odel

% H i F R t ! #


32/34

%on$e" Ho"i9on Fo" Recent !e"#o"'ance

Panel A: Raw

Returns

Panel B: &AP 8

Alpha0013

(0008)0060

(0003)

0101(0003)

021(001")

00"3(0008)

008(0008)

012"(0010)

0212(001")

0008(0008)

00#2(0003)

00#(0003)

01(001")

018(001#)

0023(0008)

00#1(0008)003

(0010)01"(001")

016(001#)

Q2t Q1t

Q"t Q1t

Q#t Q1t

Qt Q1t

reputet2

reputet2 -Q2t Q1t .

reputet 2 -Q"t


Q1t . reputet 2 -Qt

Q1t .

000(001)0021

(0016)002#

(0018)00#8

(0028)0066

(0022)0022(0023)

006"(00"0)

011(00"1)

02"0(00#")

0001(001#)001

(001)00"

(0018)00"#

(0028)00#0

(0022)003

(002)

006

(00"0)01##

(00"1)02

(00##)

$nter%ept 00"(00"6)

400"(00"6)

4000(00"6)

0002(00"6)

400#(00"6)

400"(00")

AdG R2 0"23 0"#" 0"# 0"26 0""3 0"##

Ba%k to Robustness


&odel

Re$"ession With Mana$e"ial Replace'ent


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Re$"ession With Mana$e"ial Replace'ent

Panel A: Raw

Returns

Panel B:

&AP 8Replacement 0es 9o 0es 9o

=er+t 01" 012" 0163 01#64002 40023 40061 400""

reputet1 000 00"# 4001" 400"6

400#6 4002# 400# 4002"

=er+t reputet1 0136 0"1" 010# 0280

40102 400 40033 4002

$nter%ept 4012" 0008 4008# 400034008 400#" 40088 400#

Ba%k to 7perients

Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 "" ! "#

&odel

Re$"essions Ac"oss Fee St"uctu"es


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Re$"essions Ac"oss Fee St"uctu"es

Panel A: Raw

Returns

Panel B: &AP 8

Alpha

Front #oad #ow ;igh #ow ;igh

=er+t 011 01" 016 0166(00#2) (00"3) (00#3) (00"3)

reputet1 00# 0036 008 0038

(00"6) (00") (00") (00"2)

=er+t reputet1 0268 01#0 0222 0102

(001) (0066) (0081) (006)

$nter%ept 0106 400 0108 40032(008) (0066) (008) (0066)

Ba%k to 7perients

Apoorva Javadekar (Boston University) Reputation and Fund Flos February 8, 2016 "# ! "#

apoorva javadekar - how does mutual fund reputation affect subsequent fund flows?

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