Are Some Mutual Fund Managers Better Than Others? Cross-Sectional Patterns in Behavior and Performance

TLDR: In this paper, the authors examine whether mutual fund performance is related to characteristics of fund managers that may indicate ability, knowledge, or effort, and study the relationship between performance and the manager's age, the average composite SAT score at the managers's undergraduate institution, and whether the manager has an MBA.

Abstract: We examine whether mutual fund performance is related to characteristics of fund managers that may indicate ability, knowledge, or effort. In particular, we study the relationship between performance and the manager's age, the average composite SAT score at the manager's undergraduate institution, and whether the manager has an MBA. Although the raw data suggest striking return differences between managers with different characteristics, most of these can be explained by behavioral differences between managers and by selection biases. After adjusting for these, some performance differences remain. In particular, managers who attended higher-SAT undergraduate institutions have systematically higher risk-adjusted excess returns. THE FINANCIAL PRESS PRODUCES a tremendous volume and variety of information about the individuals who manage mutual funds. Profiles of fund managers are a staple of many financial magazines, and managerial changes at large funds merit front page stories in newspaper business sections. Recently, the Securities and Exchange Commission has allowed some funds to advertise the past records of their managers in the press, even though those track records were assembled while the managers were employed by other funds. Thus, one gets the impression that investors pay a great deal of attention to the individuals who are managing their money. In light of this behavior, an obvious question to ask is whether some managers are indeed better than others. A large number of previous papers have addressed the related question of whether some mutual funds are better than others (from an investor's perspective) by looking for evidence of persistence over time in mutual fund