Informational advantage, attention allocation, and mutual fund performance
by Zexin Zheng
THESIS
2022
M.Phil. Finance
1 online resource (vi, 29 pages) : illustrations
Abstract
This paper estimates a fund learning index based on an existing theoretical model to
capture the attention allocation decisions of fund managers. This paper finds that low-learning-index funds, which allocate attention to portfolios with low information acquisition,
outperform their high-learning-index counterparts by over 3% per year. Further
studies show that the performance gap is driven by differences in informational advantage:
Holding assets of low-learning-index funds are relatively undervalued, return spreads
are larger in times of greater exploitable mispricing opportunities, and managers’ attention
allocation decisions are persistent.
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