Manager professional background: impact on performance and style
thesisposted on 28.03.2022, 10:41 by Sijin Wang
The prior professional experience of a manager is important for investors to be able to evaluate the opportunity and risk associated with them. Using a sample of funds and managers taken from Chinese open-ended mutual funds from February 2002 to December 2017, we find that managers with diverse professional experience perform differently and manage their funds in a variety of styles. Managers from government and research backgrounds have a higher risk-adjusted return while facing less market risk. Further detailed analysis shows that managers with government and research backgrounds have efficient investment skills, although market timing measurements suggest that the source of their informational advantage may differ. In contrast, managers with an investment background have higher raw returns generated by following ordinary investment strategies and taking higher systematic risk. Fund managers from a banking background make more money growth on their funds and compensate for their lower performance in generating returns. These results are robust after controlling time and fund fixed effects. In summary, we provide a possible explanation for the mechanism of the impact of prior professional experience on fund performance, whereby managers use the comparative advantage accumulated along career to retrieve informational advantage and generate abnormal return.