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WORKING PAPERS
Winner of the Best Paper Award at the FIRN Asset Management Meeting 2024
Abstract: I study analyst reports for worldwide equity mutual funds to examine two key features of active management models: investor learning and decreasing returns to scale. Flows respond to report tone over and above analyst ratings, especially for direct-sold and young funds, indicating that some investors use qualitative research when allocating capital. Report tone also predicts future abnormal returns. Using dictionary and machine learning methods, I show that analysts emphasize fund size and capacity when assets deviate from model-implied optimal levels, providing signals about under- or overcapitalization and thus positive-NPV opportunities. A composite of tone and capacity language strongly predicts returns.
Are Subjective Expectations Formed as in Rational Expectations Models of Active Management? (with Magnus Dahlquist and Markus Ibert, 2025)
Forthcoming in Management Science
Abstract: We recover forward-looking expected net-of-fee abnormal returns (alphas) for active equity mutual funds from analyst ratings. In contrast to the typical equilibrium implication of zero alphas, analyst alphas are negative for most funds, but positive for the largest funds. We compare analysts’ subjective expectations with expectations from a rational expectations learning model. The model’s rational learner believes that an increase in fund size leads to a decrease in returns, but we find no evidence that analysts believe so. Consistently, counterfactual ratings based on the rational model tend to outperform analysts’ ratings out of sample. Investor fund flows respond significantly to analyst ratings.
WORK IN PROGRESS
Trading on Index Constituent Changes: Active vs. Passive Fund Management (with Michael Klug)
Subjective Expectations and Overreaction in the Mutual Fund Industry (with Magnus Dahlquist and Markus Ibert)
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