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Idea sharing and the performance of mutual funds

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  • Cujean, Julien

Abstract

I develop an equilibrium model to explain why few mutual fund managers consistently outperform, even though many have strong informational advantages. The key ingredient is that managers obtain investment ideas through idea sharing. Idea sharing improves statistical significance of alpha through increased price informativeness. But it also causes better informed managers to take larger positions, which makes their alpha noisier—although a significant fraction of managers builds strong informational advantages, statistical significance and persistence of alpha concentrate in underperforming funds. I argue that in-house development of ideas cannot explain these facts.

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  • Cujean, Julien, 2020. "Idea sharing and the performance of mutual funds," Journal of Financial Economics, Elsevier, vol. 135(1), pages 88-119.
  • Handle: RePEc:eee:jfinec:v:135:y:2020:i:1:p:88-119
    DOI: 10.1016/j.jfineco.2019.05.015
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    More about this item

    Keywords

    Idea sharing; Performance; Rational-expectations equilibrium;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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