The impact of education on active management of equity mutual funds
No Thumbnail Available
URL
Journal Title
Journal ISSN
Volume Title
School of Business |
Master's thesis
Ask about the availability of the thesis by sending email to the Aalto University Learning Centre oppimiskeskus@aalto.fi
Authors
Date
2017
Department
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
88
Series
Abstract
The purpose of this thesis is to investigate the impact of educational backgrounds of equity mutual fund managers on active management measured by active share, tracking error, and fund duration. The thesis contributes to active mutual fund management literature by studying the relation between the dimensions of active management and educational characteristics identified to have an impact on fund performance. Although the thesis does not study the relation between education and performance as such, the results add to the story behind the observed good performance of the most active funds and create new insights regarding the differences between mutual fund managers with educational backgrounds of different quality. The novel hand-collected data set comprises 1,448 fund-year observations of 354 managers that were solely responsible for managing 321 U.S. equity mutual funds for at least one full year between 2000 and 2015. The evaluation of the quality of education focuses on the average composite SAT score at the manager’s undergraduate institution and Businessweek ranking of MBA programs. This information is combined with data on fund-specific control variables, active share, and fund duration. The data are used in OLS and logit regressions, and several robustness checks are performed. The results of the thesis imply that the quality of educational background has an impact on active management of equity mutual funds. First, there is evidence that managers from more selective undergraduate institutions and from the best MBA programs have higher average levels of active share than their peers. Additionally, managers without MBA education have higher average levels of active share compared to managers with an MBA of lower quality. Further, there is weak evidence that managers with CFAs have higher average levels of active share. Second, having graduated from a more selective undergraduate institution increases the likelihood of being responsible for diversified stock picking strategies, strategies involving very high levels of active share, as well as patient and active strategies. Third, there is some evidence that managers from the best MBA programs are more likely to invest in strategies involving very high levels of active share. However, this relation does not hold for diversified stock picking strategies or patient and active strategies. Finally, the results imply that managers who graduated from more selective undergraduate institutions and from the best MBA programs are less likely to have very low levels of active share, however this relation is not robust to using an alternative definition of closet indexing. Overall, the results are consistent with previous literature. First, the results are in line with studies suggesting that the most active funds have been rather successful in the past. Second, the findings are consistent with studies that suggest differences in performance among fund managers based on educational backgrounds. Even if no causal links can be inferred based on the results, the findings still imply that managers with better educational backgrounds are both more active on average and more likely to invest in the most active strategies. To summarize, the results highlight the usefulness of identifying the best educated fund managers both for investors looking for very active funds and fund management companies offering such funds.Description
Thesis advisor
Jokivuolle, EsaKeywords
equity mutual funds, education, active share, fund duration, tracking error