Date of Award
Doctor of Philosophy
In this dissertation I examine mutual fund performance from the points of view of three distinct, but interrelated parties: individual investors, financial advisors, and the boards of directors of mutual fund companies. In the first essay, "Comparing Fund Flow Sensitivity for Load and No-Load Funds Under Different Market States," I compare the flow-performance sensitivity of no-load funds and the three main classes of load fund shares, assuming investment advisors are more likely to guide the decision-making process of load fund investors. I find that load investors are more sensitive to raw fund return than are no-load investors. The flow to performance relation increases during good market states, but portfolios formed from the top performing funds after good market years actually tend to underperform during the following three years. In the second essay, "Mutual Fund Performance and Board Characteristics Relating to Manager Terminations," I examine the timing of the decision to replace fund managers. I find that while returns and flows improve for those funds which replace their managers, very similar improvement is found in funds which do not terminate their managers. However, for mutual fund boards which do choose to replace a poorly performing manager, stronger board governance characteristics are associated with a greater probability of early replacement. In the third essay, "Mutual Fund Performance in Extreme Market States," I examine performance of actively managed mutual funds separately for good and bad states of the market to test whether mutual funds perform differently under different market conditions. I find that the sample of funds performs 2.3 percentage points better in good states over bad on a risk adjusted basis. I also analyze the performance of mutual funds by assuming individual funds are part of a larger, more complete portfolio. The performance of the portfolios closely matches that of the individual funds.
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