Geography,Informal Information Flows and Mutual Fund Portfolios

This paper explores how informal information channels impact mutual fund performance. We measure the strengths of two location‐based information channels: 1) information transfers among fund managers (fund‐fund links) and 2) transfers between managers and the companies in which they invest (fund‐company links). We find that each channel increases investment performance in the absence of the other, but decreases it when acting in combination. Stock selection associated with the presence of one channel, but the absence of the other, earns positive future returns. Our results indicate that the economic benefits of informal information channels depend critically on the nature of their interactions.     

When active fund managers deviate from their peers: Implications for fund performance

This paper proposes that the extent to which mutual fund managers’ beliefs deviate from the ex ante unobservable representative beliefs of their peers contains information about their skill. A new measure based on portfolio allocations, peer deviation, is used to capture a fund manager’s divergence from the contemporaneously unobservable beliefs of her peers. The portfolio based on representative beliefs of a group of managers investing in similar assets outperforms passive benchmarks, indicating that they reflect informed beliefs. Fund managers who simultaneously arrive at portfolio selections which, in hindsight, are close to those implied by representative beliefs possess ex ante more skill and exhibit future outperformance. Copycat strategies replicating lagged portfolio holdings implied by representative beliefs outperform the actual portfolio holdings of funds that deviate most, but the outperformance dissipates after two quarters.     

Limited attention and portfolio choice: The impact of attention allocation on mutual fund performance

This study proposes that the performance of mutual fund managers is linked to how efficiently they allocate attention across assets in their investment set. Motivated by existing models of optimal portfolio choice and rational inattention, we posit that the efficiency of attention allocation increases when a manager chooses larger (smaller) active positions in assets that need more (less) information acquisition effort to resolve uncertainty about future payoffs. We show that the efficiency of attention allocation has a significantly positive impact on future fund performance. Efficient attention allocation has a lesser impact on performance as the total demands on a manager's limited attention increase.