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Interaction between mutual fund managers and fund investors
thesisposted on 2022-03-28, 20:58 authored by Chanyuan Ge
This PhD thesis evaluates fund managers' risk-taking incentives and performance outcomes in the money market mutual fund and equity mutual fund segments.The thesis consists of three key chapters based on three research papers. The research paper entitled `Out of Sight, Out of Mind: Information Insensitivity and Risk-taking of Prime Institutional Money Market Funds' analyzes the economic implications of a more informationally sensitive net asset value (NAV) for prime institutional money market funds' (PIFs) risk-taking incentives. In July2014, the Securities and Exchange Commission (SEC) introduced a new reform requiring PIFs to disclose daily portfolio mark-to-market prices to the public on a daily basis and adopt the Floating NAV (FNAV) trading rule. The results show that in response to the new reform, PIFs have: (i) shortened aggregate portfolio maturity; (ii) lowered gross yields; (iii) boosted daily and weekly portfolio liquidity; and (iv) increased their holdings of safe assets in an attempt to eliminate the greater informational advantage of investors. Interestingly, PIF managers have proportionally readjusted their risk-taking under the FNAV pricing system,confirming the existence of lower dilution cost and weaker adverse selection under this regime. The overall evidence supports the view that the new SEC reform has contributed to improving the overall resiliency of PIFs. The research paper entitled `Floating NAV Pricing under Single- versus Multi-strike Prime Institutional Money Market Funds' is the first to assess the implications of the intraday FNAV strike system for PIFs' risk-taking incentives.PIFs have begun to offer multiple redemption windows to cater to investors with greater liquidity needs; however, this is at the cost of greater exposure to unanticipated asset-liability mismatches during the day. Using unique data on the intraday striking system of PIFs, this study shows that in an attempt to limit their exposure to heightened intraday ow-related liquidity risk, multi-strike funds have: i) reduced maturity risk; ii) increased portfolio liquidity; iii) reduced portfolio holdings of risky assets relative to safe assets; and iv) intensified their reach for yield. This study finds that institutional investors are prepared to pay a premium for their more frequent access to intraday liquidity. Importantly, this study finds no evidence that this heterogeneity in PIFs' risk-taking behavior across multi and single-strike funds is explained by cross-sectional differences in investors' risk preferences. The research paper titled `Jack of All Trades versus Specialists : Fund Family Specialization and Mutual Fund Performance' explores, for the first time, the impact of specialization decisions by a fund family, as reflected by its asset-based concentration in the active management segment (ACF), on the performance of its equity mutual funds. This study finds that active funds of fund families with higher ACF enjoy superior performance and greater investor capital allocation. Importantly, funds of fund families with higher ACF exhibit greater reliance on private information production, a clear signal of managerial skill. These findingsare not explained by heterogeneity in total ownership costs and outsourcing arrangements of the fund family. By exploiting a quasi-experiment involving fund families' sponsorship acquisition events, it is shown that fund performance deteriorates markedly when the acquiring fund family has lower ACF than the selling fund family. Last, this study shows that funds affiliated to fund familieswith higher ACF enjoy significant institutional advantages from better family-level allocation of resources to information production.