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Is It Who You Know or What You Know? Evidence from IPO Allocations and Mutual Fund Performance

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  • Hwang, Chuan-Yang
  • Titman, Sheridan
  • Wang, Yuxi

Abstract

Mutual fund managers with degrees from elite universities tend to outperform their counterparts from less elite universities. We show that the better performance of elite graduates is generated from their better connections with underwriters that facilitate allocations to underpriced initial public offerings (IPOs). Indeed, we find that the funds outperform only in months when they are connected to underwriters issuing IPOs. A strategy of buying mutual funds in months when they are connected to underwriters scheduled to issue IPOs generates significant abnormal returns, as high as 4.08% per annum in hot markets.

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  • Hwang, Chuan-Yang & Titman, Sheridan & Wang, Yuxi, 2018. "Is It Who You Know or What You Know? Evidence from IPO Allocations and Mutual Fund Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(6), pages 2491-2523, December.
    • Handle: RePEc:cup:jfinqa:v:53:y:2018:i:06:p:2491-2523_00
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    Cited by:

    1. Hiraki, Takato & Honda, Toshiki & Ito, Akitoshi & Liu, Ming, 2021. "Banks, IPO underwriting, and allocation in Japan," Journal of Economics and Business, Elsevier, vol. 116(C).
    2. Jing Xie, 2024. "Stock-Picking by Mutual Funds: Evidence from Trading in Family-Controlled Firms," Working Papers 202411, University of Macau, Faculty of Business Administration.
    3. Kanis Saengchote & Jananya Sthienchoak, 2020. "Mutual Fund Participation in IPOs: Thai Evidence," PIER Discussion Papers 131, Puey Ungphakorn Institute for Economic Research.
    4. Nefedova, Tamara & Pratobevera, Giuseppe, 2020. "Do institutional investors play hide-and-sell in the IPO aftermarket?," Journal of Corporate Finance, Elsevier, vol. 64(C).
    5. Saengchote, Kanis & Sthienchoak, Jananya, 2020. "Strategic participation in IPOs by affiliated mutual funds: Thai evidence," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    6. Thomas J. Chemmanur & Jiekun Huang & Jing Xie & Yuyuan (Anthony) Zhu, 2024. "The Geography of Institutional Investors, Information Sharing among Institutions, and Initial Public Offerings," Working Papers 202409, University of Macau, Faculty of Business Administration.
    7. Bai, John Jianqiu & Tang, Yuehua & Wan, Chi & Yüksel, H. Zafer, 2022. "Fund manager skill in an era of globalization: Offshore concentration and fund performance," Journal of Financial Economics, Elsevier, vol. 145(2), pages 18-40.
    8. Hoitash, Udi & Mkrtchyan, Anahit, 2022. "Internal governance and outside directors’ connections to non-director executives," Journal of Accounting and Economics, Elsevier, vol. 73(1).

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