Pramodkumar Yadav, ’21

Is retirement money of mutual fund family employees smart? What implications does it have for investors who are not employed by fund families?

Mutual funds receive investments from a range of investors. Day-to-day investment decisions in mutual funds are made by portfolio managers and these funds are offered through mutual fund families. My job market paper shows that while employees of mutual fund families are able to allocate their investments across funds that perform better in future, other investors are not. Investing in funds that subsequently perform better is a joint test of both existence of managerial skill in mutual funds, and recognition of this skill by investors. The paper shows that fund family employees use their proximity to fund managers to gather valuable signals about fund manager skill and use this information to invest their retirement money across mutual funds.

My paper makes an important contribution by identifying a set of investors who can recognize managerial skill over longer time horizons. The investor welfare implication is that outside investors can use the information content of fund employees’ investments to earn better future fund alpha.