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You’re Fired! New Evidence on Portfolio Manager Turnover and Performance

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  • Kostovetsky, Leonard
  • Warner, Jerold B.

Abstract

We study managerial turnover for both internally managed mutual funds and those managed externally by subadvisors. We argue that turnover of subadvisors provides sharper tests and helps address several unresolved issues and puzzles from the previous literature. We find dramatically stronger inverse relations between subadvisor departures and lagged returns, and new evidence on how past flow predicts turnover. We find no evidence of improvements in return performance related to departures, but flow improvements are associated with departures of poor past performers. Our findings represent new evidence on how investors, sponsors, and boards learn about and evaluate mutual fund management performance.

Suggested Citation

  • Kostovetsky, Leonard & Warner, Jerold B., 2015. "You’re Fired! New Evidence on Portfolio Manager Turnover and Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(4), pages 729-755, August.
    • Handle: RePEc:cup:jfinqa:v:50:y:2015:i:04:p:729-755_00
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    Cited by:

    1. Angelidis, Timotheos & Babalos, Vassilios & Fessas, Michalis, 2021. "The economic gain of being small in the mutual fund industry: U.S. and international evidence," International Review of Financial Analysis, Elsevier, vol. 77(C).
    2. Asyngier Roman & Miziołek Tomasz, 2017. "Impact of Fund Managers Changes on Polish Equity Funds Performance," Folia Oeconomica Stetinensia, Sciendo, vol. 17(1), pages 97-108, June.
    3. Beggs, William & Hill-Kleespie, Austin & Liu, Yanguang, 2022. "Mutual fund tax implications when investment advisors manage tax-exempt separate accounts," Journal of Banking & Finance, Elsevier, vol. 134(C).
    4. Cici, Gjergji & Dahm, Laura K. & Kempf, Alexander, 2018. "Trading efficiency of fund families: Impact on fund performance and investment behavior," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 1-14.
    5. Wolfgang Bessler & David Blake & Peter Lückoff & Ian Tonks, 2018. "Fund Flows, Manager Changes, and Performance Persistence [Does motivation matter when assessing trade performance? An analysis of mutual funds]," Review of Finance, European Finance Association, vol. 22(5), pages 1911-1947.
    6. Dachen Sheng & Heather A. Montgomery, 2024. "Assessing Mutual Fund Performance in China: A Sector Weight-Based Approach," Mathematics, MDPI, vol. 12(16), pages 1-21, August.
    7. Huang, Ying Sophie & Liang, Bing & Wu, Kai, 2021. "Are mutual fund manager skills transferable to private funds?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 614-638.

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