Research

WORKING PAPERS

• Learning about Managerial Skill and Fund Scale from Mutual Fund Analysts (2025)

Winner of the Best Paper Award at the FIRN Asset Management Meeting 2024

[Internet Appendix]

Abstract: I study mutual fund analyst reports in the context of the two key features of active fund management models: sophisticated investor learning and decreasing returns to scale. Using dictionary-based and machine-learning approaches I measure report tone and size-related language. Investor fund flows react to the report tone consistent with investors exerting effort to learn about managerial skill from analyst reports. High-tone funds outperform low-tone funds by about 1% per year showing that reports are informative and, trivially, investors reallocate their assets slower than implied by active management models. Next, I examine the extent to which analysts are concerned with fund size. Size-related vocabulary features more prominently when funds operate at inefficient sizes suggesting that professional analysts qualitatively comprehend the concept of decreasing returns to scale. A signal combining report tone and analysts’ discussion of fund size and capacity identifies funds with significant future performance.

• Are Subjective Expectations Formed as in Rational Expectations Models of Active Management? (with Magnus Dahlquist and Markus Ibert, 2024)
  R&R at Management Science

[Internet Appendix]

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. Overall, analysts' expectations and the capital that follows analysts' recommendations are difficult to reconcile with existing rational expectations models of active management. 

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)