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Like a duck to water: Do credit rating analysts outperform in bond fund management

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  • Hu, Xiaolu
  • Luo, Haoyi

Abstract

This paper investigates whether bond fund managers with credit rating experience outperform their peers. We document that bond fund managers who previously worked in credit rating agencies on average create higher risk-adjusted returns than their peers by 11–16 bps per month, with better security picking and market timing skills. We further confirm that this outperformance is sourced from their industry-specific knowledge gained via rating experience (specialization), rather than information advantage provided by previous colleagues (network). Last, we document net inflows to funds managed by agent managers, indicating the investor awareness of analyst managers' skill.

Suggested Citation

  • Hu, Xiaolu & Luo, Haoyi, 2023. "Like a duck to water: Do credit rating analysts outperform in bond fund management," Journal of Corporate Finance, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923000834
    DOI: 10.1016/j.jcorpfin.2023.102434
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    References listed on IDEAS

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    1. Veronika K. Pool & Noah Stoffman & Scott E. Yonker, 2012. "No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice," The Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2563-2599.
    2. John (X.) Jiang & Isabel Y. Wang & K. Philip Wang, 2018. "Revolving Rating Analysts and Ratings of Mortgage-Backed and Asset-Backed Securities: Evidence from LinkedIn," Management Science, INFORMS, vol. 64(12), pages 5832-5854, December.
    3. Thomas Dangl & Youchang Wu & Josef Zechner, 2008. "Market Discipline and Internal Governance in the Mutual Fund Industry," The Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2307-2343, September.
    4. Huberman, Gur, 2001. "Familiarity Breeds Investment," The Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-680.
    5. John M. Griffin & Tao Shu & Selim Topaloglu, 2012. "Examining the Dark Side of Financial Markets: Do Institutions Trade on Information from Investment Bank Connections?," The Review of Financial Studies, Society for Financial Studies, vol. 25(7), pages 2155-2188.
    6. Sumit Agarwal & Vincent Y. S. Chen & Weina Zhang, 2016. "The Information Value of Credit Rating Action Reports: A Textual Analysis," Management Science, INFORMS, vol. 62(8), pages 2218-2240, August.
    7. Vikas Agarwal & Haibei Zhao, 2019. "Interfund Lending in Mutual Fund Families: Role in Liquidity Management," The Review of Financial Studies, Society for Financial Studies, vol. 32(10), pages 4079-4115.
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    Cited by:

    1. Zhang, Yun & Liu, Yun & Tang, Yicheng & Gao, Qun, 2024. "Large shareholders' stock selling and corporate performance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 86(C).

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    More about this item

    Keywords

    Fixed income mutual fund managers; Credit rating; Past careers; Social networks; Investment skills;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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