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ABSTRACT

We study capital allocations to managers with two mutual funds, and show that

investors learn about managers from their performance records. Flows into a fund

are predicted by the manager’s performance in his other fund, especially when he

outperforms and when signals from the other fund are more useful. In equilibrium,

capital should be allocated such that there is no cross-fund predictability. However,

we find positive predictability, particularly among underperforming funds. Our results

indicate incomplete learning: while investors move capital in the right direction, they

do not withdraw enough capital when the manager underperforms in his other fund.

∗

Darwin Choi and Abhiroop Mukherjee are at Hong Kong University of Science and Technology, and

Bige Kahraman is at Saı̈d Business School, University of Oxford. We thank Kenneth Singleton (the editor),

an associate editor, and two anonymous referees for many helpful suggestions. We are also grateful for com-

ments received from Tim Adam, Vikas Agarwal, Nicholas Barberis, Jonathan Berk, Utpal Bhattacharya,

Lauren Cohen, Magnus Dahlquist, Francesco Franzoni, Mariassunta Giannetti, William Goetzmann, Luis

Goncalves-Pinto, Jennifer Huang, Marcin Kacperczyk, Raymond Kan, Dong Lou, Kasper Nielsen, Lubos Pas-

tor, Jonathan Reuter, Mark Seasholes, Paolo Sodini, Laura Starks, Per Stromberg, Mandy Tham, Heather

Tookes, Michaela Verardo, Baolian Wang, Mitch Warachka, Russ Wermers, Youchang Wu, Tong Yao, Hong

Zhang, Lu Zheng, and seminar participants at American Finance Association Annual Meeting 2014, Roth-

schild Caesarea Center 11th Annual Conference 2014, China International Conference in Finance 2013,

Recent Advances in Mutual Fund Research 2013, Seventh Singapore International Conference on Finance

2013, Auckland Finance Meeting 2012, HKUST Finance Symposium 2012, Seventh Annual Early Career

Women in Finance Conference 2012, Curtin University, HKUST, London School of Economics, Shanghai

Advanced Institute of Finance, SIFR/Stockholm School of Economics, and University of Western Australia.

We acknowledge the General Research Fund of the Research Grants Council of Hong Kong (Project Number:

640610) for financial support. All errors are our own.

Mutual funds are important investment vehicles for many households. While previous studies

show that investors infer funds’ ability to generate excess future returns from past returns

and allocate their capital accordingly (Sirri and Tufano (1998); Huang, Wei, and Yan (2007,

2012); Franzoni and Schmalz (2015)), some attribute the performance-chasing behavior to

behavioral biases (Frazzini and Lamont (2008); Bailey, Kumar, and Ng (2010)).1 In this

paper, we provide evidence that investors learn about their mutual fund managers in a

sophisticated manner. Learning about managers is particularly value-relevant, as recent

empirical studies document large diﬀerences among managers in terms of skill.2 Our paper

studies managers who manage two mutual funds, and examines whether investors learn about

managerial ability from past performance in the other fund managed by the same person.

Moreover, we ask an important follow-up question: is such learning behavior, as is typically

assumed in theoretical models, complete? Our analysis contributes to the debate on the

rationality of investors’ behavior.

We ﬁrst extend Berk and Green’s (2004) model to a setting with two funds per manager,

and derive empirical tests for the ﬂow-performance relationship under fully rational and

frictionless conditions. We ﬁnd that ﬂows indeed respond to the other fund’s past perfor-

mance in the data, and in ways that are consistent with our model predictions on learning.

Instead of simply suggesting that investors are learning rationally in a frictionless market,

we take a further step and examine whether the response in ﬂows is “suﬃcient.” A superior

past performance in one fund signals positive managerial ability. If ﬂows drive down fund

performance due to decreasing returns to scale, sophisticated investors should allocate more

capital into the manager’s other fund, up to the point that it earns zero expected return in

the future.3 A similar argument applies if one of the manager’s funds performs poorly. This

null hypothesis of no cross-fund predictability, which mirrors Berk and Green’s (2004) equi-

librium, indicates suﬃcient allocation. However, if investors do not move enough capital into

and out of a fund given the other fund’s performance, there would be positive predictability,

while negative predictability could arise if investors move too much capital in response to

signals.

1

Elton, Gruber, and Busse (2004) and Choi, Laibson, and Madrian (2010) ﬁnd that some mutual fund

investors are unable to make the right choice in the simplest possible context, questioning whether investors

have the required level of sophistication.

2

Skill seems to be related to managerial characteristics such as education (Chevalier and Ellison (1999a)),

past experience (Pool, Stoﬀman, and Yonker (2012); Kempf, Manconi, and Spalt (2014)), and social networks

(Cohen, Frazzini, and Malloy (2008); Pool, Stoﬀman, and Yonker (2014)). Using novel measures of ability,

several papers ﬁnd that some fund managers are better than others (e.g., Kacperczyk and Seru (2007);

Kacperczyk, Sialm, and Zheng (2008); Cremers and Petajisto (2009); Baker et al. (2010)).

3

As argued by Berk and Green (2004), Chen et al. (2004), and Yan (2008), fund size may erode per-

formance because managers of larger funds spread their information-gathering activities too thin, and large

trades have higher price impact and execution costs.

1

Our main results are summarized as follows. We ﬁnd that ﬂows into a fund are predicted

by past performance in both of the manager’s funds. In a linear ﬂow-performance regression,

which includes past four-factor alphas of both funds as independent variables, the sensitivity

to the other fund’s performance is about 17% of the sensitivity to the fund’s performance

itself. This result is not explained by the fact that the two funds come from the same family.

We control for family ﬁxed eﬀects and the presence of a star fund, which can create spillover

ﬂows to other funds in the family (Nanda, Wang, and Zheng (2004)). Moreover, consistent

with our model’s predictions, ﬂows respond more to the other fund and less to the fund itself

when the two funds are more similar in style or when the fund has more volatile returns.

Flows also respond less when the manager has been managing the funds longer. All these

suggest that investors are drawing inferences about managerial ability from past returns of

both funds. Through a piecewise-linear regression framework, we further show that the eﬀect

of the other fund is more prominent when its performance has been exceptionally good.

which indicates that investors do not respond enough to the manager’s performance in his

other fund. We sort all two-fund managers into portfolios based on past performance in one

of their funds. Managers’ future performance in their other funds is examined, with various

holding periods. Our tests show that a manager’s past performance in one fund predicts

future performance in his other fund, a result that is also conﬁrmed by using a double sort

or running a regression, both of which control for past performance in the fund itself. Such

predictability is unlikely to be due to price pressure, as it does not reverse in the long run

(in contrast to the own-fund case; Lou (2012)), and it is not driven by cases where the two

funds’ portfolios have a high overlap. It comes mostly from underperforming multi-fund

managers, suggesting that investors do not withdraw enough money from a fund when the

other fund underperforms. This ﬁnding is consistent with our previous result that investor

ﬂows respond more to the manager’s performance in his other fund when it is better.

Although other studies have examined the ﬂow-performance relationship and return pre-

dictability in mutual funds, using two funds from the same manager oﬀers some unique

advantages. First, we provide new evidence on performance-chasing behavior, which may

be rational or related to behavioral biases. As predicted by our model, we ﬁnd that ﬂows

respond more to past performance in the other fund when the signal is more precise and

relevant, indicating that investors learn in a sophisticated manner. Second, we are able to

identify investor learning at the manager level. Previous studies conducting fund level anal-

yses typically cannot distinguish between information about the fund and its management.

Our paper contains two sets of “placebo” samples to single out the eﬀect of managers. In

2

one sample, we use the same two funds in a period when they are managed by diﬀerent man-

agers, while in the other sample, we replace one of the manager’s funds with another fund

in the same fund family or that has similar characteristics, but is not managed by the same

manager. Our main results are not observed in these placebos. Third, our research design

allows us to control for the impact of ﬂow-driven price pressure on performance persistence,

and explore the role of investor learning. There is some return persistence in mutual funds

(Carhart (1997)), but own-fund return persistence is partly attributed to price pressure aris-

ing from fund ﬂows.4 Funds facing outﬂows liquidate their positions that are concentrated

in losing stocks and drive down future stock returns as well as fund returns (Lou (2012)).

Using two funds from the same manager, we are able to control for past returns in the own

fund, which is an important driver of ﬂow-driven price pressure. We are also able to measure

the similarity between the two funds’ portfolios, and thus control for the role of overlapping

positions leading to cross-fund predictability.

Our paper contributes to the understanding of mutual fund investor learning. We con-

clude that investors are generally sophisticated – perhaps surprisingly sophisticated in light

of papers that suggest otherwise – and are responding in the correct direction. However,

capital ﬂows do not respond enough to a manager’s overall performance. Our model pro-

vides a framework that is similar to Berk and Green (2004) to understand rational learning

about managers who manage two funds, and is only partially supported by the data. We

also present a simple extension of the model, which allows for frictions. Three possible types

of frictions are discussed: (i) institutional frictions (such as loads), (ii) costly information

acquisition, and (iii) investors’ underweighting new information on their manager. We show

evidence that the ﬁrst channel is not the only driving mechanism, while channels (ii) and (iii)

result in investors’ overweighting on priors and can potentially explain our overall ﬁndings.

This paper complements other studies on cross-fund learning. Cohen, Coval, and Pastor

(2005) propose a performance measure based on the historical returns and holdings of many

other funds; however, ﬂows do not seem to respond to their measure, perhaps because

aggregating all the information across funds is too complex for a typical investor.5 Using the

4

Carhart (1997) documents some persistence in performance, especially among underperforming funds,

but the driving forces are not well understood. To explain the continued investment in the poor performers,

some authors discuss the role of biases in investor information sets or search frictions (e.g., Gruber (1996);

Goetzmann and Peles (1997)), while an alternative view relates persistence in poor performance to ﬂow-

driven price pressure (e.g., Lou (2012)). Prior research has not been able to provide conclusive evidence.

5

Information on managers, including other funds they manage, is easily accessible to investors via in-

vestment resources such as Morningstar. See, for example, http://financials.morningstar.com/fund/

management.html?t=JARTX®ion=USA&culture=en-US. Also, some fund managers can get a considerable

amount of media coverage, especially following good performance (Chevalier and Ellison (1999b); Ding and

Wermers (2012)).

3

variability in fund alphas, Jones and Shanken (2005) generate a precision-weighted average

measure of fund performance that seems to have some eﬀects on capital allocation. A

contemporaneous paper by Brown and Wu (2015) develops a model of optimal cross-fund

learning within fund families and tests the impact of family performance on ﬂows. They

argue that there are two opposite impacts: a positive common skill eﬀect and a negative

correlated noise eﬀect, and that the ﬁrst eﬀect typically dominates. While our results on the

ﬂow-performance relationship are generally consistent with Brown and Wu’s (2015) model,

our focus is on cases where two funds are managed by the same person. We ﬁnd that manager

skill is important and is diﬀerent from family-speciﬁc or industry-wide information – more

speciﬁcally, common management seems to be the main source of “common skill” eﬀect

within fund families. Another major distinction between our paper and other studies is that

we also examine the magnitude of the response: we complement prior literature by showing

that although the response in ﬂows is in the right direction, it is not always suﬃcient. We

therefore oﬀer a conclusion that is diﬀerent from prior studies. Brown and Wu (2015), for

example, do not examine predictability and present no evidence suggesting anything other

than a fully rational and frictionless world.

Other related papers include Franzoni and Schmalz (2015), who model and test Bayesian

investors’ learning behavior under uncertainty about funds’ risk loadings, showing that ﬂows

are more sensitive to performance when market returns are moderate than when market

returns are very high or low; Huang, Wei, and Yan (2012), who show that ﬂow-performance

sensitivity is weaker for funds with more volatile past performance and longer track records;

Yadav (2010) and Agarwal, Ma, and Mullally (2015), who also look at multi-fund managers,

but study managers’ incentives and the determinants of multitasking.

The remainder of this paper is structured as follows. Section I extends Berk and Green’s

(2004) model to a two-fund manager setting and derives the empirical predictions, as well as

discusses potential reasons for insuﬃcient capital allocation. Section II describes our sample.

Sections III and IV present, respectively, the results regarding our two central hypotheses:

performance-chasing and predictability. Section V concludes. The Appendix contains proofs

and a simple extension to the model.

4

I. A Model of Managers With Two Funds

We extend Berk and Green’s (2004) fully rational expectations model to accommodate

the context of each fund manager managing two funds simultaneously. Managers diﬀer in

their ability to generate returns in excess of a passive benchmark, and investors observe past

returns of the two funds and attempt to infer their manager’s ability. A manager’s excess

returns over the benchmark, before fees, for his Funds 1 and 2 at time t are given by:

R1t ψ1 + 1t

Rt ≡ = ; (1)

R2t ψ2 + 2t

where ψi s, funds’ expected excess returns, are partly fund-speciﬁc and partly manager-

speciﬁc; that is, a manager can generate excess returns, but not necessarily by the same

amount in the two funds (ψ1 generally does not equal ψ2 ).6 While we do not model the source

of these excess returns, we believe that managers could possess stock-picking and market-

timing ability (Berk and Green (2004); Mamaysky, Spiegel, and Zhang (2008); Kacperczyk,

van Nieuwerburgh, and Veldkamp (2014)) and that part of the two funds’ excess returns

is attributable to the manager. Throughout the paper, we deﬁne the unobserved ability

to generate expected (gross) returns in excess of a passive benchmark in the two funds as

manager skill. It refers to the abnormal gross return investors can earn from their perspective,

as in Berk and Green (2004) and Pastor, Stambaugh, and Taylor (2015).7 The idiosyncratic

errors, it s, are normally distributed with mean zero, and can be diversiﬁed away by investing

in many diﬀerent funds. We assume that 1t and 2t are uncorrelated.8

Denote the size of Fund i (i = 1, 2) at time t as qit , and the costs of management as C(qit ),

which is a function of size. Assume managers earn a ﬁxed management fee, f , expressed as

a fraction of the fund size.9 The excess total payout to investors of fund i, net of fees and

6

We model ψi s as partly fund-speciﬁc and partly manager-speciﬁc for parsimony. The model is robust

to an alternative speciﬁcation in which fund-speciﬁc excess returns and manager-speciﬁc excess returns are

separate parameters.

7

Our deﬁnition of skill is diﬀerent from, for example, Berk and van Binsbergen (2014), who argue that

manager skill should be assessed by the value his fund extracts from markets. Their measure of value added

of the fund is gross return over its benchmark multiplied by total assets under management. It is a measure

in dollars taking into account the total value extracted from investors through fees, while our focus is how

investors make their capital allocations based on their perceived return.

8

Brown and Wu (2015) allow idiosyncratic shocks to be positive correlated. To keep the model simple,

we abstract from this correlated noise eﬀect.

9

In a more complicated model, fees can be endogenous. We keep our model simple by abstracting from

managerial fee-related issues. Also, although we discuss some possible reasons for the existence of multi-fund

5

costs, at time t + 1 is

T Pi,t+1 = qit Ri,t+1 − C(qit ) − qit f. (2)

As in Berk and Green (2004), the costs of management are increasing and convex (C (q) > 0

and C (q) > 0) as funds face decreasing returns to scale. They argue that decreasing returns

to scale arise because, for a larger fund, trades might be associated with a higher price impact

or execution costs, and the information-gathering activities might be spread thinner. For

simplicity, we assume that there are no cost externalities from one fund to another (i.e., for

Fund 1, C(q1t ) only depends on q1t but does not depend on q2t , and vice versa). The excess

net return to investors of fund i is therefore equal to

T Pi,t+1

ri,t+1 = = Ri,t+1 − c(qit );

qit

c(q1t )

i.e., rt+1 = Rt+1 − . (3)

c(q2t )

C(qit )

where c(qit ) ≡ qit

+ f , is the unit cost associated with investing in Fund i at time t.

Investors are Bayesians and observe historical returns Rt (which they infer from excess net

return rt in equation (3)) from t = 1, . . . , T . The returns Rt are drawn from a multivariate

normal distribution with unknown mean μ = ψψ12 (from equation (1)) and known variance-

covariance matrix Ω = V01 V02 . That is,

ψ1

Rt ∼ N ( ; Ω). (4)

ψ2

ψ10

∼ N (μ0 ; Σ0 ), (5)

ψ20

W1 W12

where Σ0 ≡ W 12 W2

. W12 captures the covariance between ψ10 and ψ20 . This represents

investors’ beliefs on how much the manager’s ability can be carried from one fund to the

other. We deﬁne the following precision matrices: S ≡ Ω−1 and P0 ≡ Σ0 −1 .

In the absence of frictions, investors should invest more money into funds that earn

positive expected excess net returns (in the next period), and withdraw from funds that

managers in Section II, the model is silent on how managers are assigned to funds. The current setting refers

to situations where investors start learning about the manager after he begins to manage two funds.

6

earn negative expected excess net returns. Given that there are decreasing returns to scale,

investors competitively allocate capital to funds, up to the point that all funds earn zero

expected excess net returns (as in Berk and Green’s (2004) equilibrium). Therefore, from

the investor’s perspective, which is conditioned on the information set available at time T ,

ET [ri,T +1 ] = 0, (6)

for all managers and all funds. In our fully rational and frictionless baseline model in this

section, the conditioning information at time T is complete and the probability measures

of investors are rational. This learning environment is the same as that in Berk and Green

(2004). Appendix B presents an extension where the investor’s expectation operator is

diﬀerent from the “true” expectation operator.

c(q1T )

ET [RT +1 ] = . (7)

c(q2T )

Denote investors’ expected excess gross fund returns, given information at time T , as μT .

We have

c(q1T )

μT ≡ ET [RT +1 ] = . (8)

c(q2T )

Now we specify the process by which investors update their beliefs on ψψ12 , the two funds’

ability to beat the benchmark (recall that the ability is partly due to the manager). From

equations (4) and (5), both the signal Rt and the prior ψψ1020

follow a multivariate normal

distribution. Applying Theorem 1 from DeGroot (2004, p.175), the mean of the posterior

distribution of the manager’s ability to beat the benchmark at time T is given by

where RT is the arithmetic mean of R1 , R2 , . . . , RT . This updating rule states that the

posterior mean depends on the mean of the priors at time 0, the precisions of the signals

and the priors, the number of periods, and the average excess gross return. This Bayesian

updating yields the following equation (see Appendix A for the derivation):

In equilibrium, the posterior mean depends on the mean at time T − 1, the precisions of the

7

signals and the priors, the number of periods, and the excess net return at time T . When the

excess net return is positive (negative), the posterior mean is revised upward (downward)

from the mean at time T − 1.

We are interested in investors’ ﬂows into and out of Funds 1 and 2. In our context, we

examine the change in the size of the funds, qiT − qi,T −1 . Since the unit cost function c is

monotonically increasing in qit , it suﬃces to look at the change in the unit cost, c(qiT ) −

c(qi,T −1 ).10 From equations (8) and (10),

c(q1T ) − c(q1,T −1 )

= μT − μT −1 = [P0 + T S]−1 SrT (11)

c(q2T ) − c(q2,T −1 )

Td

d W1 + V2

where A1 = ;

Δ V1

d W12

A2 = ;

Δ V2

2

d = W1 W2 − W12 ;

T 2 d2 W 1 W2

Δ=d+ + T d( + ).

V1 V2 V1 V2

tured by A1 and A2 , the coeﬃcients of excess net returns in equation (12).11 Proofs of all

propositions are presented in Appendix A.

PROPOSITION 1: Flows are always increasing in the fund’s past excess return; ﬂows are

increasing in the other fund’s past excess return, as long as W12 is positive.

10

For a formal proof that c (q) > 0, see Berk and Green (2004, p.1276). The interested reader can also

see Berk and Green (2004) for specifying a cost function and expressing the equation in terms of percentage

ﬂow.

11

In both the model and the empirical tests, we examine the ﬂow-performance relationship at the fund

level. We only require investors of Fund 1 to take into account Fund 2’s past performance when they decide

how much to invest in Fund 1, and it is not necessary that every investor of Fund 1 should also invest in

Fund 2. Furthermore, an investor of Fund 1 can buy Fund 1 at any time, that is, he does not have to wait

for Fund 2 to be created or assigned to the manager. In other words, Funds 1 and 2 may have diﬀerent

clienteles; however, our fund-level data do not allow us to examine them more closely.

8

Intuitively, ﬂows chase past performance in the fund, as it signals the fund’s ability

to beat the benchmark. If managerial skill carries over from one fund to another (W12

is positive), then good past performance in the other fund is also a positive signal of the

manager’s ability, and ﬂows chase past performance in the other fund as well. W12 can also

tell us about the relative size of the two coeﬃcients, A1 and A2 . If the following condition is

W1 + T d

satisﬁed, V1 V2 > WV12 2

, then A1 > A2 . In other words, if W12 is below a certain threshold,

then investors respond more strongly to the fund’s past performance than to the other fund’s,

as the latter is less relevant. We discuss the relative size of these coeﬃcients in Section III.A.

B. Cross-Sectional Predictions

In this section, we develop a few more testable hypotheses by examining how A1 and

A2 change with some parameters in the model. These help us understand when the ﬂow-

performance relationship should be stronger in the cross-section of managers.

PROPOSITION 2: If W12 is higher, then ﬂows respond more to the other fund’s past excess

return, and less to the own fund’s past excess return.

This means that when skill is less transferable across funds (W12 is lower), the other

fund’s performance becomes less relevant, and investors naturally have to depend more on

the fund itself to infer their future prospects. If skill is more transferable across funds, then

the coeﬃcients go in opposite directions.

PROPOSITION 3: If the signal from the own fund return is noisier, then ﬂows respond

more to the other fund’s past excess return, and less to the own fund’s past excess return. If

the signal from the other fund return is noisier, then ﬂows respond more to the own fund’s

past excess return, and less to the other fund’s past excess return.

A higher volatility makes investors less certain that a positive excess return is due to

skill, and therefore investors rationally put a lower weight on more volatile fund returns. As

before, a similar logic applies: the reduced relevance of one signal makes investors depend

more on the other, ceteris paribus.

PROPOSITION 4: If the manager has been managing the two funds for a longer time period,

then ﬂows respond less to both the own fund’s past excess and the other fund’s past excess

returns.

9

Finally, if T is larger (the manager has been managing the two funds for longer), then

investors have already learned more about the manager’s ability using the past signals, and

react less to the most recent excess returns of the two funds.

behavior, under which we expect investors to simply chase past returns in both funds (sen-

sitivities do not vary with the parameters). We will test the Propositions in Section III.

In the baseline model, we present a fully rational and frictionless equilibrium that is

similar to Berk and Green (2004). Note that the equilibrium condition in the model implies

that the manager’s two funds should earn zero expected excess net return from the investor’s

perspective (equation (6)). In Appendix B, we extend our model to account for frictions.

ioral frictions. First, in the presence of transactions costs such as front-end and back-end

loads imposed by institutions, investors may choose to not react to new signals because they

ﬁnd it more costly to move capital across diﬀerent funds. Second, information (fund perfor-

mance) may not be accessible to investors at zero cost. The cost of acquiring information

can be the time and eﬀort cost of ﬁnding out how funds have performed, or “observation

costs” as in Duﬃe and Sun (1990), Gabaix and Laibson (2005), Abel, Eberly, and Panageas

(2007), and Alvarez, Guiso, and Lippi (2012). As a result, investors would not be able to ob-

tain new information on a continuous basis. Finally, investors may suﬀer from conservatism

(Edwards (1968); Barberis, Shleifer, and Vishny (1998)) and psychologically rely too much

on priors. All these channels might make investors place too much weight on priors and too

little weight on new information, relative to a Bayesian operating in a frictionless world (our

baseline model).

= {I − [P0 + T S]−1 S}μT −1 + [P0 + T S]−1 SRT

= {I − M }μT −1 + M RT , (13)

where M = [P0 + T S]−1 S. If investors overweight priors and underweight new information,

10

we can modify equation (13) to reﬂect this:

where μIT is the expected gross fund returns under investors’ beliefs and information, and

0 < k < 1.12

Our extension in Appendix B demonstrates that if investors use equation (14) to update

their beliefs, then ﬂows into a fund will be less responsive to the other fund’s past excess

return. As a result, excess return of one fund will positively predict the other fund’s expected

future performance, unlike in the rational and frictionless equilibrium. However, the model

extension demonstrates that cross-sectional predictions from our baseline model remain valid,

even in the presence of frictions.

From the modeling perspective, we do not distinguish between the three types of fric-

tions. Brav and Heaton (2002) show that a learning model with behavioral biases (such as

conservatism) looks mathematically very similar to a learning model with incomplete infor-

mation, which makes it hard to distinguish between the two. We investigate the empirical

evidence regarding frictions in Section IV.C.

We primarily use the Center for Research in Security Prices (CRSP) Survivorship Bias

Free Mutual Fund Database. The CRSP mutual fund database includes information on

fund returns, total net assets (TNA), fees, and other fund characteristics including man-

agers’ names. While managers’ names are provided by CRSP, a large panel of multi-fund

managers is not readily available. This is because the names are not recorded consistently

across time and funds: ﬁrst and middle names are sometimes abbreviated diﬀerently and

are sometimes excluded. We track all managers carefully and hand-construct our database

of multi-fund managers, taking into account spelling diﬀerences and format changes, similar

to, for example, Kacperzyk and Seru (2007). Sometimes the names do not match perfectly:

we apply our best judgment by ﬁrst, looking up publicly available information on funds from

the Internet, and, if this information is not available, by estimating how common the names

12

The model can also accommodate underweighting of priors and overweighting of new information, if we

allow k > 1. The remainder of the analysis will be analogous, so we focus on k < 1 for clarity and simplicity.

Ultimately, whether our data is more consistent with 0 < k < 1 or k > 1 is empirically testable, as we show

in Section IV.

11

are (e.g., common last names are more likely to refer to diﬀerent people). We analyze all

names that are available in CRSP and drop funds with missing managers’ names. From the

CRSP data we are able to identify 9,596 distinct managers.

We focus on funds that are managed by a single person who manages more than one

fund (we call these managers “multi-fund managers”). The reasons for our exclusion of funds

managed by two or more people is that team-managed and solo-managed funds have diﬀerent

organizational structures (Chen et al. (2004)), and we do not know how the responsibilities

are divided among team managers. Following Agarwal, Ma, and Mullally (2015), we also

exclude cases where a manager runs more than four funds, as these managers are likely to

be team managers.

To be consistent with other recent papers in the literature, our analysis uses a subset

of funds in the CRSP database. We examine funds with investment objectives of growth

and income, growth, and aggressive growth. The objectives are identiﬁed by the investment

objective codes from the Thomson-Reuters Mutual Fund Holdings database.13 We only

include funds that have more than half of their assets invested in common stocks. Finally,

we exclude index funds (funds that are identiﬁed by CRSP as index funds or funds that

have the word “index” in their reported fund names), as well as funds that are closed to new

investors.

During our sample period, many funds have multiple class shares. Since each class share

of a fund has the same portfolio holdings, we aggregate all the observations to the fund

level, following Kacperczyk, Sialm, and Zheng (2008). For qualitative attributes such as

objectives and year of origination, we use the observation of the oldest class. For the TNA

under management, we sum the TNAs of all share classes. We take the lagged TNA-weighted

average for the rest of the quantitative attributes (e.g., returns, alphas, and expenses).

Data on managers’ names from CRSP are available starting in 1992.14 Our sample

13

We link CRSP and Thomson-Reuters data using the Mutual Fund Links database. We thank Russ

Wermers for making this database available. For more detailed information, please see Wermers (2000).

14

There are a number of data sources to identify managers: CRSP (e.g., Kacperczyk and Seru (2007)),

Morningstar (e.g., Pool, Stoﬀman, and Yonker (2012)), and other sources such as Nelson’s Directory of In-

vestment Managers, Zoominfo, and Zabasearch (e.g., Kacperczyk, van Nieuwerburgh, and Veldkamp (2014)).

Recent papers highlight the challenges of identifying the management structure (e.g., team- or anonymously-

managed) using CRSP or Morningstar. According to Massa, Reuter, and Zitzewitz (2010), the main problems

arise from (i) CRSP sometimes not reporting any manager name when a fund has more than three man-

agers, and (ii) Morningstar classifying any fund with more than two managers as “Team Managed” (prior to

1997), without reporting the managers’ names. Another data concern is that some team-managed funds are

misclassiﬁed as single-managed funds (Patel and Sarkissian (2014)). As we do not focus on diﬀerent types

of management structures, these issues are not critical. Nonetheless, we follow Agarwal, Ma, and Mullally

(2015) and exclude cases where a manager runs more than four funds, as these managers are likely to be team

managers. Note that some of the concerns pointed out in the past are not applicable to our data set, since

12

covers the period 1992 to 2012. The fraction of managers that manage more than one fund

in our sample is 27%, and these managers manage 30% of the total assets in domestic equity

actively managed mutual funds. In the data we construct from CRSP, a multi-fund manager

typically manages two open-end mutual funds for four years. While our paper does not study

how mutual fund managers become multi-fund managers or managers’ incentives, Agarwal,

Ma, and Mullally (2015) report that these managers are usually more experienced and have

performed well in the past, after which they either start new funds or take over other funds

within the same fund company. Agarwal, Ma, and Mullally (2015) also show evidence

of performance deterioration in the old funds they have been managing and performance

improvement in the acquired funds, suggesting a potential agency problem. Yadav (2010)

shows that star funds can result in investors’ ﬂows into other funds managed by the same

manager, and managers have an incentive to create more diﬀerent portfolios to increase the

likelihood of generating a star fund.

discuss a few potential explanations. First, companies may use additional funds to retain

good managers; there is already evidence for that in other parts of the fund industry. For

example, star mutual fund managers can manage hedge funds side-by-side (Nohel, Wang,

and Zheng (2010); Deuskar et al. (2011)), and well-performing closed-end fund managers are

sometimes given an additional fund to manage (Wu, Wermers, and Zechner (2015)). Second,

using existing managers can help fund companies overcome labor market frictions in the form

of asymmetric information, as companies are better informed about current managers than

new hires (Berk, van Binsbergen, and Liu (2014)). Third, smaller organizations with fewer

employees work more eﬃciently if information is “soft” and cannot be credibly transmitted

(Stein (2002); Chen et al. (2004)), so some fund companies simply assign one of the existing

managers to a new fund instead of hiring a new manager.

To test the model in Section I, we randomly pick two funds from each multi-fund manager,

but our results are mostly unchanged if we restrict our analysis to managers who only

have two funds (reported in the Internet Appendix, Table IA.III; note that most multi-fund

managers, about 85% in our data, have two mutual funds only). After a manager starts

managing a fund, we require at least six months of data on past monthly returns during his

tenure to estimate his performance. In the end, we have 19,538 fund-month observations in

we have hand-cleaned the data using public information available outside of CRSP. For example, diﬀerences

in reporting the manager’s name are something that we explicitly account for. Finally, we report in the

Internet Appendix (Table IA.V) that our main results of ﬂow-performance and predictability regressions

are similar, even when we only use fund-pairs that have consistent manager information from Morningstar

Direct.

13

our baseline ﬂow-performance regression. Insert

Table I

Table I reports summary statistics of the main attributes of multi-funds in our sample

(Panel A) and of funds that are managed by single-fund managers (Panel B). The single-

fund managers are deﬁned as managers who manage only one fund. We report summary

statistics on fund ﬂow, performance and risk measures, age, TNA, total expense, and total

family TNA. As evident from Table I, funds managed by multi-fund managers do not seem

to be materially diﬀerent from funds managed by single-fund managers: average ﬂows into

these two types of funds are both 0.5% per month, average alphas are at −2 to −7 bps per

month, and average total expenses are at 1.5% per year; fund age (median ln(Age) is 2.5), size

(median ln(F undSize) (in $ millions) is 5.5 to 5.8), and family size (median ln(F amilySize)

(in $ millions) is 8.9 to 9.4) are all similar. As the number of funds a manager manages is not

exogenous, we do not claim that our sample of multi-fund managers’ funds is the same as the

remaining part of the U.S. equity mutual fund universe. Nevertheless, multi-fund managers

still make up a sizable part of the industry, and we believe that they provide an interesting

setting to study investors’ capital allocation decisions, as discussed in the Introduction. Insert

Table II

Table II compares the two funds of multi-fund managers, Funds 1 and 2, which are as-

signed without speciﬁc regard to their age and other characteristics. Average characteristics

such as alphas, standard deviation of return, age, size, total expense, and loadings on the

Carhart (1997) factors, are similar across the two groups.15

Relationship

We test the model’s predictions in this section. Section III.A presents the empirical

results of ﬂow-performance regressions. After showing that the response is consistent with

investor sophistication in Section III.B, we conduct some robustness tests in Section III.C.

These tests aim to conﬁrm that our results are not picking up market- or industry-wide

eﬀects that aﬀect mutual fund ﬂows generally, or investor learning from other (diﬀerent-

manager) funds (as documented by Cohen, Coval, and Pastor (2005); Jones and Shanken

15

This does not mean that the two funds of the same manager are always very similar. If we remove all

common holdings between the two funds (say, both funds hold 3% in IBM), the median “uncommon weight”

is about 60%. Many of the stock picks are speciﬁc to each fund, which may not be too surprising because the

funds often have diﬀerent styles (due to institutional restrictions or client preferences, etc.), and managers

have incentives to create at least one good performing fund (Yadav (2010)), so they do not necessarily pick

the same set of stocks in both funds. Section III.B provides an empirical proxy for the diﬀerence in styles

between the two funds.

14

(2005); Brown and Wu (2015)).

A. Flow-Performance Regressions

The dependent variable in our ﬁrst set of regressions, F lowit , is the proportional growth

in total net assets (T N Ait ) under management for fund i between the beginning and the end

of month t, net of internal growth Rit , assuming reinvestment of dividends and distributions.

F lowit = .

T N Ai,t−1

We follow standard practice in the literature and winsorize the top and bottom 2.5% tails

of the net ﬂow variable to remove errors associated with mutual fund mergers and splits, as

documented by Elton, Gruber, and Blake (2001).16

We use four-factor alpha (Alphait ) as a measure of fund performance. While there are

obviously other measures of performance, risk- or style-adjusted returns are preferred over

raw returns because the two funds managed by the same manager often have diﬀerent objec-

tives. Consistent with our model’s predictions being based on excess (benchmark-adjusted)

returns, our empirical analysis focuses on diﬀerences in fund performance that are not simply

a result of diﬀerences in their styles or objectives. Alphait is the risk-adjusted returns (αi )

in the preceding 12 months estimated using Carhart (1997) four-factor model (we suppress

the subscript t; the regression is run for every 12-month window). A 12-month window is

chosen with the consideration that multi-fund managers typically manage the two funds over

a period of four years.

In the ﬁrst set of tests, we run a ﬂow-performance regression that is motivated by equation

(12) in Section I. The dependent variable in the regression is monthly ﬂows into one of the

funds of a multi-fund manager, F lowt (all the subscripts i are dropped for brevity). Our

main coeﬃcient of interest is the lagged performance in the other fund (Alpha2t−1 ) of the

manager, while we control for the lagged performance in the corresponding fund (Alphat−1 ).17

16

We also use an alternative deﬁnition of F lowit , which has an additional term (1+Rit ) in the denominator.

Using this deﬁnition, ﬂows will not be lower than −100%. The Internet Appendix (Table IA.I) shows that

our results are robust to the alternative measure.

17

In the Internet Appendix (Table IA.III), we use style-adjusted returns instead of alphas as an alternative

speciﬁcation. The style-adjusted return is calculated as the monthly return on the fund, in excess of the

15

We include a number of control variables in our analysis. These include a measure of fund

age (ln(Aget−1 )) calculated by the natural logarithm of (1 + fund age), lagged fund size

(ln(F undSizet−1 )) measured by the natural logarithm of fund TNA, lagged total expense

(Expenset−1 ) which is the sum of expense ratio plus one-seventh of the front-end load, a

measure of the total risk of a fund measured by the standard deviation of fund raw returns in

the preceding 12 months (Stdrett−1 ), the contemporaneous total ﬂows into the corresponding

objective of the fund (ObjF lowt ), and year-month ﬁxed eﬀects. We also control for ﬂows

in the preceding ﬁve months, since monthly ﬂows are predicted by past fund performance

as well as past monthly ﬂows (e.g., Coval and Staﬀord (2007)). Our baseline regression

speciﬁcation is as follows:18

+ β3 ln(Aget−1 ) + β4 ln(F undSizet−1 ) + β5 Expenset−1

t−1

+ β6 Stdrett−1 + β7 ObjF lowt + βs F lows

s=t−5

+ βx YearMonthFixedEﬀects x + t . (15)

x

sample there are two funds for a given manager in a given month. These are counted as

two observations. For example, in one observation, we study the ﬂow into one fund (say,

F1) and the performance in the other fund (say, F2) of the manager. Then in another

observation, F2 becomes the fund in question and F1 becomes the “other fund.” We address

concerns regarding correlations between error terms by clustering the standard errors in the

regressions at the manager level.19 Insert

Table

Table III shows the results of our regressions (the subscripts t and t − 1 are dropped

III

for brevity). Column (1) supports Proposition 1: both Alpha and Alpha2 are positive and

signiﬁcant. The results are consistent with our model, in which investors should learn about

average return on all funds in the same CRSP investment objective code from the prior 12 months. The

regression equation for this alternative speciﬁcation is the same as equation (15), except that the performance

variables are deﬁned based on style-adjusted returns. Our conclusions remain very similar.

18

Since our sample of multi-fund managers is a subset of all mutual funds, we do not have too many

observations in each month-year and we choose to conduct our main analysis in a panel regression. Nev-

ertheless, after excluding the month-years with fewer than 25 observations, we ﬁnd that the results using

Fama-Macbeth regressions are similar to those using panel regressions. The Fama-Macbeth regressions are

reported in the Internet Appendix (Table IA.II).

19

Manager or family ﬁxed eﬀects are included in some speciﬁcations, because recent studies show that

certain family (e.g., Hortacsu and Syverson (2004)) and managerial characteristics (e.g., Kumar, Niessen-

Ruenzi, and Spalt (2015)) attract more ﬂows.

16

managerial ability from past performance in the fund, as well as in the manager’s other fund.

The magnitude of the coeﬃcient of Alpha2 is about 17% of that of Alpha. Increasing Alpha

by one standard deviation increases ﬂows by 0.38% (of Total Net Assets) per month, while

the same increase in Alpha2 increases ﬂows by 0.06% (of TNA) per month. We noted in

Section I.A that if W12 is lower than a certain threshold, then investors should react more

strongly to the fund itself than to the other fund. The current results may be explained

by this, but may also be explained by investors’ insuﬃcient response to the other fund; the

latter is explored in Section IV.

The next column runs the same regression, adding interactive terms between Alpha and

ln(Age) and between Alpha and Stdret (as in Huang, Wei, and Yan (2007, 2012)). The

results are similar. Note that in Column (2), the coeﬃcients of Alpha and Alpha2 are not

directly comparable in the presence of the interactive terms.

Our theory model predicts a linear relationship between ﬂows and performance. However,

Huang, Wei, and Yan (2007) show that participation costs generate a convex relationship. To

empirically allow for diﬀerent ﬂow-performance sensitivities at diﬀerent levels of performance,

we employ the piecewise linear speciﬁcation from Sirri and Tufano (1998) in Columns (3) and

(4). For each fund i in month t, we assign a fractional performance rank (Rankit ) ranging

from 0 (poorest performance) to 1 (best performance) according to its past 12-month four-

factor alpha, relative to all funds in the same month. Then three variables are deﬁned accord-

ing to Rankit : the lowest performance quintile as Low Alphait = Min(Rankit , 0.2), the three

medium performance quintiles grouped as M id Alphait = Min(0.6, Rankit − Low Alphait ),

and the top performance quintile as High Alphait = Rankit − M id Alphait − Low Alphait .

This regression speciﬁcation is similar to equation (15), except that the performance mea-

sures are now represented by the quintile variables: Alpha in equation (15) is replaced by

three independent variables, Low Alpha, M id Alpha, and High Alpha, based on lagged

performance in the corresponding fund; Alpha2 is replaced by three independent variables,

Low Alpha2, M id Alpha2, and High Alpha2, based on lagged performance in the man-

ager’s other fund.20 Column (3) suggests that ﬂows into a fund are positively related to

the fund’s own past performance in all quintiles. The strongest eﬀect is observed in the

highest-performing group.

20

The coeﬃcients are interpreted as follows: Suppose the coeﬃcients of Low Alpha, M id Alpha, and

High Alpha are β1 , β2 , and β3 , respectively, and that the regression intercept is α. If all other independent

variables are equal to zero, a fund in the 5th percentile would have ﬂows that equal (α + Low Alpha × β1 =

α+0.05β1 ), while a fund in the 95th percentile would have ﬂows that equal (α+Low Alpha×β1 +M id Alpha×

β2 + High Alpha × β3 = α + 0.2β1 + 0.6β2 + 0.15β3 ). The corresponding variables of the other fund

(Low Alpha2, M id Alpha2, and High Alpha2) are interpreted similarly.

17

The Alpha2 variables in Column (3) are all weaker than the corresponding Alpha vari-

ables. Only High Alpha2 is statistically signiﬁcant. Our results are therefore more promi-

nent when the performance in the other fund is in the top quintile, perhaps because mutual

fund managers or companies make high-performing funds more visible to investors and in-

vestors pay more attention to these funds. When we examine the magnitude of the eﬀect,

the coeﬃcient of High Alpha2 is 49% of that of High Alpha (i.e., when the fund in question

is in the top quintile), considerably higher than the ratio in the linear regression in Column

(1). As such, if both funds of the same manager are performing very well, investors’ ﬂows

into a fund are relatively more sensitive to the performance in both funds. Moving Alpha

ten percentiles in the highest performance group, say, from the 85th to the 95th percentile,

corresponds to a greater inﬂow of 0.39% (of Total Net Assets) per month, while the same

change in Alpha2 is associated with a greater inﬂow of 0.19% (of TNA) per month. The

last column adds manager ﬁxed eﬀects as extra control variables. The results are similar:

High Alpha2 remains statistically signiﬁcant, while Low Alpha2 and M id Alpha2 are still

insigniﬁcant.

While Columns (1) to (4) already control for the total ﬂows into the corresponding

objective of the fund (ObjF low), we further deal with potential eﬀects of investors’ style

chasing by examining an alternative ﬂow measure. We deﬁne objective-adjusted ﬂows as ﬂows

into the fund minus the average ﬂows into the corresponding objective of the fund. Columns

(5) to (8) repeat Columns (1) to (4) using objective-adjusted ﬂows as the dependent variable

(ObjF low is removed from the list of independent variables). Our conclusions remain the

same, so style chasing cannot explain our results.21

B. Cross-Sectional Results

If investors are learning about managers’ ability in a sophisticated manner, ﬂows should

be more responsive to the other fund in situations where the signal provided by the other

fund is more relevant and useful. Four predictions are formalized in Section I.B. We expect

that investors learn more from the other fund and less from the own fund, when (i) excess

returns are more transferable across funds (Proposition 2), (ii) the signal from the own fund

return is noisier (Proposition 3), and (iii) the signal from the other fund return is more

precise (Proposition 3). We also expect ﬂows to be less sensitive to past performance in

21

Instead of using ﬂows into funds in the same objective, a further robustness test is conducted using ﬂows

into funds in the same style, deﬁned based on past Carhart (1997) four-factor loadings. We do this in case

some funds follow investment styles that are diﬀerent from the objectives stated in their prospectus. The

results, reported in the Internet Appendix (Table IA.IV), are again similar.

18

both funds, when (iv) the manager has been managing the funds for a longer period of time

(Proposition 4).

To measure the transferability of skill across funds (W12 in equation (5)), we calculate

StyleDiﬀerence as follows:

StyleDiﬀerence = abs( − 1) + abs( − 1) + abs( − 1) + abs( − 1),

β2,M KT β2,SM B β2,HM L β2,U M D

where β1,X and β2,X are the two funds’ loadings on the Carhart (1997) factors estimated

from the past 12 months. StyleDiﬀerence is a measure to capture the diﬀerence in factor

loadings.

We believe that W12 depends on this diﬀerence. For example, if a manager has a large-

value fund and a small-growth fund, skill shown in one fund is less likely to be carried to the

other fund. For the volatility of the signal from fund returns (V1 and V2 in equation (4)), we

use the standard deviation of fund raw returns in the preceding 12 months (Stdret). Then,

we deﬁne a set of dummy variables: StyleRank, which equals 1 when StyleDiﬀerence is above

the median based on all historical records up to the current month; V olRank (V ol2Rank),

which equals 1 when Stdret of the fund (of the other fund) is above the sample median

in the corresponding month; T imeM anageRank, which equals 1 for the latter half of the

manager’s tenure in the corresponding fund-pair.22 We interact the dummy variables with

performance measures in the own fund and in the other fund, and run the ﬂow-performance

regression, equation (15). Insert

Table

Column (1) of Table IV shows that the coeﬃcient of Alpha2 is signiﬁcant at 1% level, but

IV

if StyleDiﬀerence is above the historical median (i.e., StyleRank = 1), the eﬀect of Alpha2

becomes signiﬁcantly weaker and is close to zero, while the eﬀect of Alpha becomes even

stronger. Column (2) attempts to control for both style and volatility. One concern is that

volatile fund returns may give noisy beta estimates, thereby causing a higher StyleDiﬀerence

mechanically. We address this concern by introducing another dummy variable that controls

for high volatility in the two funds. In every month, we rank all managers on whether

they have at least one fund more volatile than the sample median (i.e., V olRank = 1 or

V ol2Rank = 1) and note the median multi-fund manager. Then the dummy variable,

OneV olatileF und, equals 1 if the manager ranks above this median manager in the month.

The results of StyleRank interaction variables in Column (2) are similar to those of Column

22

T imeM anageRank is measured within the fund-pair, and is the exact analog of the model parameter

T . Also, as we do not observe the managers’ complete track records, managers’ overall tenure (i.e., how long

they have been managing funds in the mutual fund industry) cannot be measured correctly. In contrast,

T imeM anageRank can be measured in our data.

19

(1), suggesting that style and volatility have diﬀerent impacts on the coeﬃcients of Alpha

and Alpha2. These results support Proposition 2.

is signiﬁcantly weaker if Stdret is above the median, that is, V olRank = 1. In Column

(4), the interaction terms Alpha × V ol2Rank and Alpha2 × V ol2Rank are introduced in

the regression. The interactions involving V olRank (from the own fund) are statistically

signiﬁcant, but those involving V ol2Rank (from the other fund) are insigniﬁcant. Consistent

with the results from Table III (that is, investors use signals from the other fund only when

the performance is high), investors do not seem to always fully use information from the

other fund. Finally, Column (5) supports Proposition 4. Both own-fund and cross-fund

ﬂow-performance relationships are signiﬁcantly weaker in the second half of the manager’s

tenure in the fund-pair.

Taken together, Tables III and IV suggest that the ﬂow-performance relationship in multi-

funds arises, to a large extent, from investor sophistication: mutual fund investors seem to

draw inferences about a manager’s skill from the other fund’s past performance, particularly

when it provides more information. The ﬁndings are unlikely to be explained by a behavioral

bias such as trend-chasing; in such a case, we do not expect that the eﬀects of Alpha and

Alpha2 will vary in a systematic manner as predicted by our model.

The signiﬁcance of the coeﬃcients of Alpha2 variables may be attributed to family eﬀects,

since the two funds of the multi-fund managers belong to the same fund family. In Table

V, we address this concern by controlling for information from the family. Brown and Wu

(2015) show two opposite impacts of family performance: a positive common skill eﬀect and

a negative correlated noise eﬀect. Their results are similar in spirit to ours: their proxy for

the common skill component is the average management overlap rate between the fund and

other funds in the family. In their sample, Brown and Wu (2015) show that their proxy

for the common skill eﬀect dominates on average. In Column (1), we omit Alpha2 from

the regression but include the family average alpha (F amilyAlpha, excluding the fund in

question but including the manager’s other fund) as an independent variable. The coeﬃcient

of F amilyAlpha is positive and signiﬁcant, consistent with Brown and Wu (2015). Insert

Table V

In Column (2), we include Alpha2 as an additional independent variable and deﬁne

F amilyAlpha as the average family alpha excluding the two funds managed by the manager.

20

Column (3) introduces an extra dummy variable that represents stellar performance (top 5%

based on past alpha) of other funds in its family, following Nanda, Wang, and Zheng (2004).

Nanda, Wang, and Zheng (2004) ﬁnd that the stellar performance can create a spillover

eﬀect to increase the inﬂows into other funds in the family. Column (4) further includes

family ﬁxed eﬀects to control for time-invariant unobservable family characteristics. The

results in all three columns are generally unaﬀected by these additional control variables:

the coeﬃcients of Alpha2 are statistically signiﬁcant, similar to Table III.

(2) to (4). Using managers who manage two funds, our test allows us to better understand

the diﬀerent aspects of the common skill eﬀect, namely common management (i.e., manager)

and availability of resources at the family level (e.g., access to common resources such as

research analysts and brokers). We ﬁnd that the average family alpha (excluding the two

funds managed by the manager) has a negative impact on fund ﬂows. Therefore, our evidence

suggests that, after controlling for the performance in the manager’s other fund, the positive

common skill eﬀect of other funds in the family is dominated by negative eﬀects such as

correlated noise.

We further distinguish between manager and family eﬀects in two “placebo tests,” which

also control for market-wide events or other factors that may impact funds with similar

characteristics. The ﬁrst placebo test examines the two funds in a period when they are

managed by diﬀerent managers. Suppose a multi-fund manager manages the two funds

during the time interval [ta , tb ], and the two funds exist and are managed by diﬀerent people

outside the interval. We examine the periods [ta − 24, ta − 12] and [tb + 12, tb + 24]. We skip

12 months before ta and 12 months after tb with the consideration of our alpha estimation.

If ﬂows chase past performance because of other common factors impacting the two funds,

then we would still see a positive relationship between ﬂows and Alpha2 variables. However,

Table VI Columns (1) and (2) show that this is not the case. In Column (1), the coeﬃcient

of Alpha2 is marginally signiﬁcant but negative (consistent with the result of F amilyAlpha

in Table V, as these fund pairs are in the same fund family). In Column (2), the coeﬃcients

of the Alpha2 variables, in all performance quintiles, are statistically indistinguishable from

zero. Insert

Table

Second, we make use of control funds, matching on characteristics that matter for ﬂows.

VI

Let F1 be the fund in question and F2 be the other fund. We then ﬁnd a control fund, M2, to

match F2. Our matching algorithm, much like the commonly-used stock-matching algorithm

employed in Loughran and Ritter (1997), ﬁnds the “nearest fund.” The procedure is outlined

in Appendix C. We use the same M2 throughout the manager’s tenure in the two funds. The

21

idea is to choose a fund within the family and/or of similar size, and with the most similar

average characteristics, based on those that are included in the baseline ﬂow-performance

regression (equation (15)). Table VI Columns (3) and (4) repeat Table III Columns (1) and

(3), replacing Alpha2 (i.e., four-factor alpha of F2) variables with variables based on the

four-factor alpha of M2. If our previous results are mostly due to investors’ learning about

the multi-fund manager, ﬂows into F1 would not respond to the past performance of M2.

The results in this placebo test are in line with our expectation. None of the variables,

Alpha2 (in Column (3)), Low Alpha2, M id Alpha2, and High Alpha2 (in Column (4)), is

signiﬁcant.

Overall, this section shows that mutual fund investors chase performance in the direction

predicted by our model.

Our next question is whether there is any cross-fund return predictability: can one fund’s

return predict subsequent performance in the other fund? The sign of such predictability is

evidence that investors systematically move too little (positive predictability) or too much

(negative predictability) capital across funds, relative to our frictionless rational benchmark.

This research question diﬀerentiates our paper from other studies on cross-fund learning,

such as Cohen, Coval, and Pastor (2005), Jones and Shanken (2005), and Brown and Wu

(2015). We not only provide evidence that investors learn, but also ask whether they are

responsive enough to signals, as is typically assumed in theoretical models such as Berk and

Green (2004).

Our test is derived from the equilibrium in Section I.A. Equation (6) states that all funds

should earn zero expected excess net returns, from the investor’s perspective. The intuition

behind the mechanism is described as follows. Investors chase performance in the other

fund because they want to allocate more money to skillful managers, and diseconomies of

scale cause inﬂows to drive down performance. Investors competitively supply funds so that

their expected excess net returns going forward are zero. Therefore, in a frictionless and

rational equilibrium, one would see zero cross-fund return predictability.23 We consider our

23

This test is similar in spirit to Glode et al. (2012), who use Berk and Green’s (2004) model as a

benchmark and study own-fund predictability in up and down markets. It is possible that investors respond

to fund performance with the right level of capital ﬂows in the single fund setting — performance seems

unpredictable in some cases such as directly-sold funds (Del Guercio and Reuter (2014)). However, to the

best of our knowledge, no one has yet looked at predictability with multiple funds. This is surprising, as

we argue later in this section, since the multi-fund setting is particularly suitable for allaying price-pressure

22

test a joint-hypothesis test: the joint null is that inﬂows (outﬂows) deteriorate (improve)

performance and that investors allocate their capital in accordance with our frictionless

benchmark. A number of studies indicate diseconomies of scale in mutual funds (e.g., Chen

et al. (2004); Pollet and Wilson (2008); Yan (2008); Golez and Shive (2015)).24

Under the assumption that size erodes performance, if investors move too little capital

out of Fund 1 in response to poor past performance in Fund 2, Fund 1 will then be larger

than what it should be and will perform poorly. That is, poor past performance in Fund 2

would predict subsequent poor performance in Fund 1. The same mechanism also applies to

cases where investors move too little capital into Fund 1 when Fund 2 has performed well

(thus Fund 1 will be smaller than what it should be): good past performance in Fund 2 would

predict future good performance in Fund 1. If, however, investors move too much capital

in response to signals from the other fund, past performance in one fund would negatively

predict future performance in the other fund. If the allocation is “correct,” then we would

not observe any cross-fund predictability in fund performance.

Note that mutual fund returns generally show some persistence when performance is

poor, as documented by Carhart (1997). Lou (2012) ﬁnds that this phenomenon is at least

partially driven by the predictable price pressure arising from ﬂows. When facing outﬂows,

losing funds liquidate their existing holdings, which are concentrated in past losing stocks.

concerns that may obscure the relationship between own-fund predictability and the mechanism in Berk and

Green’s (2004) equilibrium.

24

The joint null exactly mirrors Berk and Green’s (2004) model. A growing literature investigates the

diseconomies of scale in the money management industry. As conjectured by Berk and Green (2004),

managers seem to run out of ideas (e.g., Pollet and Wilson (2008); Cremers and Petajisto (2009)) and

incur greater trading costs (e.g., Edelen, Evans, and Kadlec (2007)) as their asset base grows. Reuter and

Zitzewitz (2015) use an exogenous variation in fund size that is triggered by Morningstar star rankings.

This strategy, however, generates economically modest variation in fund size, and Reuter and Zitzewitz

(2015) do not ﬁnd evidence for diseconomies of scale. Pastor, Stambaugh, and Taylor (2015) discuss an

omitted variable bias in estimating the relationship between fund returns and size through OLS. The omitted

variables introduce a positive bias in the coeﬃcient estimate, because skill and size are likely to be positively

correlated. Diseconomies of scale (negative coeﬃcient in a regression of fund performance on lagged size)

are therefore more diﬃcult to detect using OLS. Despite this, some previous papers have documented a

negative relationship between fund returns and size. To correct for the bias, Pastor, Stambaugh, and Taylor

(2015) propose a method known as “recursive demeaning,” which requires the availability of a long time

series. A long time series is more readily available at the industry level but not at the fund level. As a

result, recursive demeaning method may lack statistical power for fund-level tests (the recursive demeaning

procedure provides economically larger estimates of diseconomies of scale than OLS, but the estimates are

statistically insigniﬁcant). Pastor, Stambaugh, and Taylor (2015) conclude that “Overall, we ﬁnd mixed

evidence of decreasing returns to scale at the fund level. The estimates are invariably negative, but our tests

do not have enough power to establish statistical signiﬁcance” (P.25). They show stronger diseconomies of

scale at the industry level.

Finally, there is also some evidence of decreasing returns to scale outside open-end mutual funds. For

example, Fung et al. (2008) and Ramadorai (2013) ﬁnd such evidence for hedge funds, and Wu, Wermers,

and Zechner (2015) for closed-end funds.

23

The future return of these losing stocks is further driven down by the price pressure, and as a

result, the funds tend to perform poorly in the next period. Therefore, testing predictability

in a single-fund setting may not directly measure investors’ response to managers’ past

performance. In contrast, using two funds from the same manager allows us to directly

control for past return and allay price-pressure concerns in the own fund. We are also able

to measure the degree of holdings overlap between funds. Price pressure should be less of a

problem when the two funds have a lower overlap.

A. Portfolio Sorts

To test our hypothesis, we ﬁrst use a single sort: we form portfolios using Fund 2 of the

manager.25 We sort all Fund 2s into quintiles, based on the past 12-month alpha of Fund 1 of

the manager. In each quintile, we form portfolios that are rebalanced monthly and held for

diﬀerent time horizons t: 1 month, 3 months, 6 months, and 12 months. Therefore, in each

month we rebalance 1/t of each portfolio. For every quintile, the portfolio returns are the

cumulative after-fee returns of Fund 2s in the corresponding quintile. The portfolio alphas

are calculated by regressing the portfolio returns on Carhart (1997) four factors using the

whole sample period. The reported t-stats are based on Newey-West standard errors with

three lags. Insert

Table

Table VII shows the portfolio alphas. Panel A sorts Fund 2s on after-fee Alpha of Fund

VII

1, and Panel B sorts on before-fee Alpha of Fund 1. The two panels show similar patterns:

we see increasing portfolio alphas as we move from quintile 1 (lowest Alpha) to 5 (highest),

with quintile 1 showing negative alphas and quintile 5 showing weakly positive alphas. The

results hold for diﬀerent holding periods. The long-short portfolio (5 minus 1) earns an alpha

of around 18–47 bps per month.26

Although we ﬁnd that performance in one of the manager’s funds predicts future returns

in the other fund, this could just be a reﬂection of the previously documented own-fund

persistence (which could be either due to incomplete learning or ﬂow-driven price pressure)

and the contemporaneous correlation between the two funds’ returns. We therefore examine

the other fund’s incremental predictive power through double-sorts. Speciﬁcally, we ﬁrst sort

all Fund 2s into terciles based on the funds’ own past performance. Then within each tercile,

we sort funds into quintiles, this time based on past performance in the manager’s Fund 1.

25

Even though we do not control for other factors in the single sort, price pressure is still less of a concern,

since portfolio overlap between Fund 1 at t and Fund 2 at t + 1 is lower than that between Fund 1 in two

consecutive periods.

26

Notice that this is not a fully implementable trading strategy: a large portion of the proﬁts comes from

the short leg of the portfolios, and mutual funds cannot be short sold.

24

The returns of the ﬁve other-fund-performance quintile portfolios are then averaged across

diﬀerent terciles of own-fund performance. That is, if r(i, j) is the return of the portfolio of

funds in the ith tercile of own-fund performance and j th quintile of performance in the other

fund, we compute, for j = 1, . . . , 5:27

r(j) = .

3

r = r(5) − r(1) = .

3

If future returns are entirely predicted by past own-fund performance, then r(i, 5) = r(i, 1)

for all i and r = 0. The magnitude of persistence in cross-fund returns obtained from this

test therefore captures the predictability from past performance in the manager’s other fund,

above and beyond own-fund persistence. Compared to the single-sorts in Table VII, the 5

minus 1 quintile portfolio returns shown in Table VIII Panel A are a bit smaller, but still

statistically signiﬁcant in most horizons; the returns also come mostly from lower quintiles

(when the other fund has poor performance).28 (Table IA.VII in the Internet Appendix

shows the full double sort results for the 1-month horizon, without averaging across terciles.) Insert

Table

VIII

B. Additional Tests

A few robustness tests are conducted in Tables VIII and IX. First, one may worry about

omitted factors driving the results. If a manager persistently takes on risk not captured by

the Carhart (1997) four-factor model in both of his funds, and if this risk is compensated,

then the manager’s excess returns in both funds will always be positive and correlated, and

the four-factor alphas we report will be positive. Since our results display an asymmetry on

good and poor performance, an omitted risk factor is unlikely to be playing an important role.

Nevertheless, we perform further checks. Table VIII Panels B and C repeat the double-sort

in Panel A, using a ﬁve-factor model and a seven-factor model, respectively.29 Panel D uses

27

We use terciles of the ﬁrst sorting variable, own-fund performance, instead of quintiles, in order to retain

a suﬃcient number of funds within each group (i, j).

28

Once we control for own-fund past performance, the lowest quintile shows weaker statistical signiﬁcance,

perhaps because of price pressure aﬀecting the overlapping parts of these funds. The second lowest quintile

is generally the most signiﬁcant. The t-stats for the third and fourth quintiles also increase but usually not

enough to become signiﬁcant. Recall that the cross-fund ﬂow-performance relationship comes primarily from

the top quintile, which still has very weak predictability in this table.

29

The ﬁve factors are the Carhart (1997) factors plus the Pastor and Stambaugh (2003) liquidity factor.

The seven factors are the ﬁve factors plus short-term and long-term reversals that are obtained from Prof.

25

style-adjusted returns in sorting, and the Carhart (1997) four-factor model in calculating

portfolio alphas. Panel E reverses the order: that is, it uses the Carhart (1997) four-factor

alphas in sorting the funds, and reports the future portfolio style-adjusted returns. Style-

adjusted returns are calculated by the fund return minus the average return on all funds

in the same CRSP investment objective code. Thus, we address an important concern that

using the same risk-adjustment procedure for sorting funds and calculating (post-sorting)

portfolio performance makes results sensitive to model mis-speciﬁcation. Even when we use

diﬀerent factor models and calculating methods, our results still hold.

Second, as discussed before, own-fund predictability is at least partly due to price pressure

and tends to reverse in the longer term. We extend the holding horizons to up to 24 months,

skipping the most recent 6 months, in Table IX Panel A. The double sort does not show

any reversal, and therefore the predictability established earlier is unlikely a result of price

pressure. Third, we make use of the two placebo samples in Section III.C (the ﬁrst set uses

the two funds in a period when they are managed by diﬀerent managers, and the second

set uses a matching fund). The placebo samples in Table IX Panels B and C do not show

a pattern in predictability like that in Table VIII. This further suggests that the cross-fund

predictability result is not coming from fund-speciﬁc omitted risk factors or other trends

impacting similar funds. Insert

Table

We also verify the return predictability in a regression framework. We regress the one-

IX

month-ahead style-adjusted return on the rank of past alpha of the other fund, in the presence

of the rank of past alpha of the fund in question as well as other characteristics:30

+ β4 ln(F undSizet ) + β5 Expenset + β6 ObjF lowt + t , (16)

where AlphaRank and Alpha2Rank are the fractional performance ranks from 0 (poorest)

to 1 (best) based on past alphas of the fund in question and the other fund, respectively, as

deﬁned in Section III.A. Other variables in equation (16) are the same as those in equation

(15). As in equation (15), in one observation, we study the risk-adjusted return of one

fund (say, F1) and the alpha of the other fund (say, F2) of the manager. Then in another

Kenneth French’s website.

30

We use the ranks of alphas as they are easier to compare with the results in portfolio sorts. This regression

is also similar in spirit to the double sort in Table VIII Panel E (that is, the dependent variable is future

style-adjusted return, while the past return variables on the right hand side use four-factor alphas). In the

Internet Appendix (Table IA.VI), we report a similar regression with one-month-ahead RiskAdjustedReturn

as the dependent variable. This is the future fund return adjusted by the Carhart (1997) four factors. The

regression can be compared with the double sort in Table VIII Panel A.

26

observation, F2 becomes the fund in question and F1 becomes the “other fund.” We use

standard Fama-MacBeth regressions following prevalent practice in cross-sectional return

predictability tests. Newey-West standard errors using 6 lags are reported. Insert

Table X

Column (1) of Table X shows that the ranks of past alphas of both funds can predict

the next-month return. We note that the coeﬃcient of Alpha2Rank is smaller than that

of AlphaRank. Increasing Alpha2 from 10th to 90th percentile corresponds to a change of

24 bps per month in the next-month return. This is similar in magnitude to the double-

sort in Table VIII. Column (2) is motivated by the results in Tables VII and VIII. We

introduce two dummy variables, LowRank and LowRank2 to indicate, respectively, the fund

in question and the manager’s other fund are in the bottom two quintiles of performance.

The coeﬃcient of LowRank2 is negative and signiﬁcant, while the regression intercept is

statistically insigniﬁcant. The results mirror our portfolio sorts: a fund is likely to continue

to perform poorly if the other fund has performed poorly in the past, while the future

performance of the reference group (the higher three quintiles) is close to zero. Column (3)

further examines the price pressure issue. We add another interactive term to indicate cases

where the two funds’ weight on common holdings is lower than the sample median (when

U ncommon = 1); because of the lower portfolio overlap, price pressure from the other fund’s

holdings should be weaker. Column (3) shows that the cross-fund predictability result is not

coming from cases where the funds have more common holdings.

Finally, we reassess the omitted factor explanation. Column (4) presents another ap-

proach to explore such a possibility. A dummy variable, Highcorr, equals 1 if the manager’s

four-factor risk-adjusted past returns in the two funds show a correlation higher than the

sample median. If managers have always been loading on the same omitted factors in both

funds, past fund returns will be highly correlated even after adjusting for Carhart (1997)

factors. However, column (4) ﬁnds that the coeﬃcient of Alpha2Rank is not particularly

stronger when Highcorr = 1, again indicating that omitted factors do not seem to be playing

an important role.

Overall, we ﬁnd that past performance in one fund predicts future performance in the

other fund — particularly when past performance in a given fund is poor. The evidence is

inconsistent with the hypothesis that the response to Alpha2 is suﬃcient. Our interpretation

is that investors do not withdraw enough capital after poor performance. This ﬁnding is

in line with our earlier evidence on the cross-fund performance chasing behavior, that is,

investors are responsive to signals from the other fund when its performance is high.

27

C. Frictions in Cross-Fund Capital Allocation

In Section I.C, we present an extension of the baseline model to a setting with fric-

tions, under which investors put too much weight on prior beliefs, relative to the baseline

frictionless benchmark. The extension allows for three types of frictions: institutional, in-

formational, and behavioral. Loads make it more costly for investors to move capital across

funds; information on fund performance may not be accessible to investors at zero cost;

and investors may suﬀer from conservatism (Edwards (1968); Barberis, Shleifer, and Vishny

(1998)) and psychologically overweight priors and underweight new information. In this

section, we explore the role of diﬀerent types of frictions aﬀecting cross-fund learning.

dictability and weaker cross-fund ﬂow-performance relationship. Intuitively, high frictions

drive investor allocations further away from the rational and frictionless equilibrium in Sec-

tion I.A. To examine institutional and informational frictions, we use two proxies based

on fund loads and fund visibility. Loads represent a type of transactions costs charged by

institutions (fund families). A dummy variable, Loads, is set to 1 if the fund in question

charges front-end or back-end loads, and 0 otherwise. It is more expensive for investors to

move capital into and out of load funds, potentially limiting investors’ adjustments. Second,

higher fund visibility reduces investors’ costs of information acquisition. If the other fund’s

performance is made more visible, then investors’ costs of acquiring information on it should

be much lower. Following Sirri and Tufano (1998), Barber, Odean, and Zheng (2005), and

Huang, Wei, and Yan (2007), we use 12b-1 fees as a proxy for the marketing expenses of the

fund. Another dummy variable, High12b1, is set to 1 if the manager’s other fund’s 12b-1 fees

are in the top tercile of the sample. We interact the two dummy variables with Alpha2Rank

and run regression (16) again, to examine the eﬀects of these frictions proxies on cross-fund

predictability. Insert

Table

In Table XI, Column (1) shows that the coeﬃcient of Alpha2Rank ×Loads is positive but

XI

insigniﬁcant, while that of Alpha2Rank is positive and signiﬁcant. While load funds seem

to have stronger cross-fund predictability, it is not signiﬁcantly diﬀerent from the no-load

sample. In other words, there is cross-fund predictability in both load and no-load funds,

suggesting that loads are not the only mechanism limiting investors’ response to the other

fund’s signal. In Column (2), we observe that the coeﬃcient of Alpha2Rank × High12b1

is negative and signiﬁcant, consistent with our prediction that higher fund visibility in the

manager’s other fund reduces information frictions, leading to weaker cross-fund predictabil-

ity.

28

We also introduce interaction terms involving these dummy variables and Alpha2 in the

ﬂow-performance regressions (equation (15), Table III). The directions should be opposite

to that in Table XI: high frictions (captured by Loads = 1 and High12b1 = 0) should

correspond to weaker cross-fund ﬂow-performance relationship. Our predictions from the

incomplete learning model in Appendix B are supported by the results in Table XII: the

coeﬃcient of Alpha2 × Loads is negative and signiﬁcant (Column (1)), while the coeﬃcient

of Alpha2 × High12b1 is positive and signiﬁcant (Column (2)). Insert

Table

To sum up, the results suggest that institutional frictions such as loads, which are per-

XII

haps important, are not the only drivers of cross-fund predictability; on the other hand,

information frictions play a role. We do not rule out behavioral frictions because they may

co-exist with other types of frictions. Our earlier results show evidence that the cross-

fund predictability relationship is stronger when the manager’s other fund performs poorly.

While it is reasonable to think that the equilibrium may take some time to restore, it is

not immediately obvious why diseconomies to scale should necessarily take longer to set-

in following bad performance, as compared to good performance. On the other hand, our

explanations regarding information and behavioral frictions are perhaps more capable of

handling this asymmetry. If funds or families make well-performing funds more visible, then

some investors would not be able to obtain new information on underperforming funds on a

continuous basis, making them rely more on their prior beliefs when the other fund underper-

forms. Behavioral frictions such as conservatism can be asymmetric if investors selectively

react to good signals from the other fund to justify their investment decisions, that is, they

have conﬁrmation bias, a tendency to favor conﬁrming information either through biased

search or biased interpretation (Lord, Ross, and Lepper (1979); Nickerson (1998)).

V. Conclusion

We develop and test a model of capital allocations in funds managed by two-fund man-

agers. Our paper contributes to the debate on whether mutual fund investors are rational.

The ﬁndings generally support the notion that investors rationally infer managerial ability

from past returns of both funds. More speciﬁcally, ﬂows into a fund are predicted by past

performance in the manager’s other fund. However, capital allocations do not always seem

to be fully consistent with our fully rational and frictionless world. Under the null hypothesis

that size erodes performance, if investors assess the manager’s performance in both funds

correctly, they would allocate exactly the right amount of capital so that all funds earn zero

expected excess return in the future. The result would be no predictability in performance.

29

However, we ﬁnd evidence of positive cross-fund return predictability. In particular, investors

do not seem to withdraw enough capital in response to poor performance in the manager’s

other fund, and thus incur losses. We conclude that although the response in ﬂows is in

the right direction, it is not always suﬃcient. This conclusion is diﬀerent from the prior

literature on investor learning about mutual funds. Our ﬁndings have implications for the

question of why some mutual fund investors continue to invest in poorly performing funds

(Gruber (1996); French (2008)). Frictions in learning about managerial skill may be one

mechanism giving rise to this phenomenon.

We oﬀer some ideas for future research. Our results on predictability are consistent with

the cross-fund ﬂow-performance relationship, that is, ﬂows show a stronger response to the

other fund when it performs well. To formalize this idea, we extend the model based on

investors’ overweighting on priors. We discuss two possible channels that may explain our

overall ﬁndings: costly information acquisition, which means that information on the other

assets managed by the manager is not continuously accessible to investors at zero cost; and

conservatism (Edwards (1968); Barberis, Shleifer, and Vishny (1998); Choi and Hui (2014)),

which causes investors to place more weight on priors and less on new information. Under the

ﬁrst channel, the asymmetry in predictability (stronger when performance is poor) would

arise as fund managers or companies are likely to strategically create spillover eﬀects by

making high-performing funds more visible. We show evidence consistent with this. As for

the other channel, it is reasonable that investors exhibit an asymmetry in conservatism due

to conﬁrmation bias: investors might be justifying their investment decisions by selectively

reacting only to good signals from their chosen managers. By studying a setting where

price pressure is not the main driver of predictability, we hope to shed some light and to

provide a framework for exploring some potential explanations. Our extension is one of these

explanations — there are certainly other ways to extend the model, but any coherent theory

of investor learning should explain the asymmetry in both cross-fund ﬂow-performance and

predictability that we document.

30

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35

Table I. Summary Statistics: Multi-Funds vs Single-Funds

This table presents summary statistics of multi-funds (funds that are managed by people who manage more

than one fund) in Panel A, and of single-funds (funds that are managed by people who manage only one

fund) in Panel B. ln (Family Size) is the natural logarithm of the fund family’s total net assets under

management. All other variables are defined in Table XIII.

Mean Median Std P25 P75

Flow 0.0052 -0.0028 0.0434 -0.0146 0.0147

Alpha -0.0007 -0.0008 0.0092 -0.0050 0.0032

Stdret 0.0497 0.0455 0.0252 0.0313 0.0615

ln (Age) (years) 2.4642 2.4849 0.8037 1.9459 2.9444

ln (FundSize) ($millions) 5.8156 5.8058 1.5439 4.6747 6.9126

Expense 0.0150 0.0148 0.0056 0.0103 0.0192

ln (FamilySize) ($millions) 9.0620 8.8840 2.7380 7.4450 10.7110

N = 29,899

Mean Median Std P25 P75

Flow 0.0050 -0.0016 0.0409 -0.0129 0.0145

Alpha -0.0002 -0.0005 0.0089 -0.0043 0.0034

Stdret 0.0467 0.0418 0.0247 0.0288 0.0581

ln (Age) (years) 2.4797 2.4849 0.7985 1.9459 2.9957

ln (FundSize) ($millions) 5.6428 5.4765 1.6603 4.4034 6.7005

Expense 0.0150 0.0144 0.0056 0.0103 0.0192

ln (FamilySize) ($millions) 9.2222 9.3562 2.8916 7.3440 11.2887

N = 60,306

36

Table II. Summary Statistics: the Two Funds of Multi-Fund Managers

This table presents summary statistics of the two funds of multi-fund managers. We pick two funds (F1 and

F2) from each manager. Panel A and B provides information on fund characteristics for F1 and F2,

respectively, and Panel C and D presents estimated loadings from Carhart 4-factor model. All variables are

defined in Table XIII.

Panel A: F1 Characteristics

Mean Median Std P25 P75

Alpha -0.0005 -0.0007 0.0089 -0.0047 0.0031

Stdret 0.0506 0.0463 0.0259 0.0318 0.0619

ln (Age) 2.4803 2.4849 0.8146 1.9459 2.9957

ln (FundSize) 5.9919 5.9829 1.4560 4.9228 7.0170

Expense 0.0146 0.0141 0.0053 0.0101 0.0188

Panel B: F2 Characteristics

Mean Median Std P25 P75

Alpha -0.0006 -0.0007 0.0090 -0.0048 0.0033

Stdret 0.0492 0.0453 0.0239 0.0319 0.0609

ln (Age) 2.4696 2.4849 0.7812 1.9459 2.8904

ln (FundSize) 5.9234 5.9132 1.5528 4.8291 6.9870

Expense 0.0146 0.0145 0.0056 0.0099 0.0193

Panel C: F1 Loadings

Mean Median Std P25 P75

MKT 0.993 0.983 0.322 0.834 1.133

SMB 0.173 0.081 0.460 -0.122 0.414

HML 0.020 0.029 0.556 -0.266 0.307

UMD 0.028 0.010 0.370 -0.138 0.173

Panel D: F2 Loadings

Mean Median Std P25 P75

MKT 0.982 0.974 0.320 0.815 1.132

SMB 0.190 0.105 0.456 -0.105 0.454

HML 0.013 0.020 0.545 -0.271 0.323

UMD 0.039 0.017 0.339 -0.128 0.187

37

Table III. Flow-Performance Regression in Multi-Funds

This table presents the results from flow-performance regressions using ordinary least squares. In columns

(1)-(4), the dependent variable is Flow, which is the proportional monthly growth in total assets under

management; the dependent variable in columns (5)-(8) is Adjusted Flow, which is the Flow minus Obj Flow.

Alpha and Alpha2 are the risk-adjusted returns of the fund and of the other fund. In columns (3)-(4) and (7)-

(8), we use a piecewise linear specification. For each month, we assign a fractional rank from 0 (worst) to 1

(best) to each fund, and define: Low Alpha = Min(Rank, 0.2), Mid Alpha = Min(0.6, Rank – Low Alpha), and

High Alpha = Rank – Mid Alpha – Low Alpha. Standard errors are clustered at the manager level. All other

variables are defined in Table XIII. *, **, and *** denote 10%, 5%, and 1% significance, respectively.

38

Flow Adjusted Flow

VARIABLES (1) (2) (3) (4) (5) (6) (7) (8)

(0.0500) (0.1589) (0.0497) (0.1581)

Alpha2 0.0697* 0.0787** 0.0654* 0.0742**

(0.0365) (0.0362) (0.0366) (0.0363)

Low Alpha 0.0156*** 0.0149** 0.0163*** 0.0154**

(0.0058) (0.0066) (0.0058) (0.0066)

Mid Alpha 0.0083*** 0.0092*** 0.0082*** 0.0091***

(0.0015) (0.0016) (0.0015) (0.0016)

High Alpha 0.0391*** 0.0485*** 0.0386*** 0.0481***

(0.0096) (0.0115) (0.0096) (0.0115)

Low Alpha2 0.0103 0.0069 0.0102 0.0067

(0.0066) (0.0073) (0.0066) (0.0074)

Mid Alpha2 -0.0025 -0.0029 -0.0024 -0.0028

(0.0017) (0.0018) (0.0017) (0.0019)

High Alpha2 0.0190** 0.0220** 0.0179** 0.0211**

(0.0079) (0.0086) (0.0079) (0.0086)

Alpha x Stdret -2.0138** -1.9474**

(0.9422) (0.9432)

Alpha x ln (Age) -0.0897** -0.0884**

(0.0453) (0.0450)

ln (Age) -0.0008** -0.0009** -0.0008** 0.0000 -0.0008** -0.0009** -0.0008** 0.0000

(0.0004) (0.0004) (0.0004) (0.0006) (0.0004) (0.0004) (0.0004) (0.0006)

ln (FundSize) -0.0003* -0.0003* -0.0003* -0.0021*** -0.0003* -0.0003* -0.0003* -0.0021***

(0.0002) (0.0002) (0.0002) (0.0004) (0.0002) (0.0002) (0.0002) (0.0004)

Expense 0.0535 0.0552 0.0514 -0.0399 0.0508 0.0524 0.0492 -0.0421

(0.0560) (0.0558) (0.0566) (0.0981) (0.0555) (0.0553) (0.0561) (0.0981)

Stdret -0.0348** -0.0332** -0.0430*** -0.0152 -0.0336** -0.0321** -0.0411** -0.0123

(0.0165) (0.0161) (0.0164) (0.0424) (0.0163) (0.0159) (0.0162) (0.0420)

Obj Flow 0.2937*** 0.2958*** 0.2918*** 0.4180***

(0.0547) (0.0551) (0.0553) (0.0672)

Constant 0.0076 0.0081 -0.0008 0.0133* 0.0105** 0.0109** 0.0019 0.0163**

(0.0051) (0.0051) (0.0052) (0.0070) (0.0050) (0.0050) (0.0052) (0.0068)

R-squared 0.365 0.365 0.365 0.275 0.346 0.346 0.346 0.245

Past Flows Yes Yes Yes Yes Yes Yes Yes Yes

Manager FE No No No Yes No No No Yes

Year-Month FE Yes Yes Yes Yes Yes Yes Yes Yes

39

Table IV. Flow-Performance Regression in Multi-Funds: Cross-Sectional Tests

This table presents the results from flow-performance regressions, interacting alphas with style difference,

return volatility and the number of periods that the manager has been managing the two funds. StyleRank and

VolRank (Vol2Rank) are dummy variables that are equal to 1 when the observation is above the sample

median. TimeManageRank equals 1 for the latter half of the manager’s tenure in this fund-pair, and 0

otherwise. The dependent variable is Flow, and Alpha and Alpha2 are the risk-adjusted returns of the fund

and of the other fund. We present results using ordinary least squares with errors clustered at the manager

level. Variable definitions are in Table XIII. *, **, and *** denote 10%, 5%, and 1% significance, respectively.

40

VARIABLES (1) (2) (3) (4) (5)

(0.0615) (0.1216) (0.0654) (0.0715) (0.0691)

Alpha2 0.1947*** 0.1624 -0.0622 -0.0788 0.0967*

(0.0608) (0.1145) (0.0637) (0.0776) (0.0586)

Alpha x StyleRank 0.1640** 0.1553*

(0.0809) (0.0806)

Alpha2 x StyleRank -0.1864*** -0.1833***

(0.0700) (0.0686)

Alpha x VolRank -0.2642*** -0.2573***

(0.0877) (0.0896)

Alpha2 x VolRank 0.2034** 0.1927**

(0.0798) (0.0908)

Alpha x TimeManageRank -0.1815**

(0.0779)

Alpha2 x TimeManageRank -0.0370*

(0.0204)

StyleRank -0.0001 -0.0001

(0.0005) (0.0005)

VolRank 0.0003 -0.0001

(0.0008) (0.0008)

TimeManageRank -0.0011*

(0.0006)

Alpha x Vol2Rank 0.0226

(0.0835)

Alpha2 x Vol2Rank 0.0240

(0.0946)

Vol2Rank 0.0007

(0.0006)

Alpha x OneVolatileFund -0.1974*

(0.1177)

Alpha2 x OneVolatileFund 0.0334

(0.1118)

OneVolatileFund -0.0002

(0.0007)

ln (Age) -0.0008** -0.0009** -0.0009** -0.0008** -0.0009**

(0.0004) (0.0004) (0.0004) (0.0004) (0.0004)

ln (FundSize) -0.0003* -0.0003 -0.0003* -0.0003* -0.0003

(0.0002) (0.0002) (0.0002) (0.0002) (0.0002)

Expense 0.0528 0.0560 0.0532 0.0438 0.0622

(0.0559) (0.0559) (0.0560) (0.0584) (0.0567)

Stdret -0.0358** -0.0322 -0.0392* -0.0381 -0.0343**

(0.0165) (0.0202) (0.0233) (0.0246) (0.0169)

Obj Flow 0.2948*** 0.3004*** 0.2977*** 0.2815*** 0.2929***

(0.0546) (0.0551) (0.0543) (0.0556) (0.0550)

Constant 0.0077 0.0075 0.0071 0.0095* 0.0077

(0.0051) (0.0051) (0.0051) (0.0054) (0.0061)

R-squared 0.365 0.365 0.365 0.365 0.372

Past Flows Yes Yes Yes Yes Yes

Year-Month FE Yes Yes Yes Yes Yes

41

Table V. Flow-Performance Regression in Multi-Funds: Controlling for Family Effects

This table presents the results of the flow-performance regressions, controlling for family effects. Column (1)

and (2) control for Family Alpha. In column (1), Family Alpha is the average alpha of the family excluding the

fund; in column (2) the average excludes the two funds from the manager. Column (3) adds Star Manager,

and Column (4) completes the analysis by including Family Fixed Effects. The dependent variable is Flow,

and Alpha and Alpha2 are the risk-adjusted returns of the fund and of the other fund. We present results

using ordinary least squares with errors clustered at the manager level. All other variables are defined in Table

XIII. *, **, and *** denote 10%, 5%, and 1% significance, respectively.

(0.0374) (0.0461) (0.0462) (0.0479)

Alpha2 0.0878** 0.0828* 0.0791*

(0.0445) (0.0445) (0.0472)

ln (Age) -0.0008 -0.0008 -0.0007 -0.0003

(0.0005) (0.0005) (0.0005) (0.0007)

ln (FundSize) -0.0002 -0.0001 -0.0002 -0.0012***

(0.0002) (0.0002) (0.0002) (0.0003)

Expense 0.1307** 0.1127* 0.1142* -0.1089

(0.0582) (0.0589) (0.0589) (0.1003)

Stdret -0.0227 -0.0198 -0.0198 -0.0099

(0.0151) (0.0153) (0.0153) (0.0199)

Family Alpha 0.0498* -0.1076* -0.1235** -0.1528**

(0.0292) (0.0613) (0.0620) (0.0729)

Star Manager 0.0012* 0.0000

(0.0007) (0.0010)

Obj Flow 0.3922*** 0.4636*** 0.4639*** 0.5230***

(0.0792) (0.0830) (0.0830) (0.0904)

Constant 0.0035 0.0072 0.0065 0.0168

(0.0078) (0.0081) (0.0081) (0.0104)

R-squared 0.325 0.328 0.329 0.346

Family FE No No No Yes

Past Flows Yes Yes Yes Yes

Year-Month FE Yes Yes Yes Yes

42

Table VI. Placebo Tests: Flow-Performance Regression in Funds Managed by Different Managers

This table presents the results from the flow-performance regressions, where we use funds that are managed

by different managers. Column (1) and (2) uses the two funds (F1 and F2) in a period when they are managed

by different managers; Column (3) and (4) replaces one of the manager’s funds (F2) with another fund that is

in the same fund family or has similar characteristics, but not managed by the same manager. The dependent

variable is Flow. In columns (2) and (4), we use a piecewise linear specification. For each month, we rank

each fund based on their alphas and assign a fractional rank from 0 (worst) to 1 (best). Then, we define: Low

Alpha = Min(Rank, 0.2), Mid Alpha = Min(0.6, Rank – Low Alpha), and High Alpha = Rank – Mid Alpha –

Low Alpha . We present results using ordinary least squares with errors clustered at the manager level. All

other variables are defined in Table XIII. *, **, and *** denote 10%, 5%, and 1% significance, respectively.

(0.0492) (0.0482)

Alpha2 -0.0909* -0.0538

(0.0470) (0.0376)

Low Alpha 0.0213*** 0.0220***

(0.0072) (0.0059)

Mid Alpha 0.0097*** 0.0084***

(0.0016) (0.0015)

High Alpha 0.0296*** 0.0423***

(0.0088) (0.0089)

Low Alpha2 -0.0022 0.0024

(0.0071) (0.0078)

Mid Alpha2 -0.0004 -0.0018

(0.0019) (0.0014)

High Alpha2 -0.0112 -0.0048

(0.0075) (0.0055)

ln (Age) -0.0009* -0.0009* -0.0009** -0.0009**

(0.0005) (0.0005) (0.0004) (0.0004)

ln (FundSize) -0.0010*** -0.0010*** -0.0002 -0.0001

(0.0002) (0.0002) (0.0002) (0.0002)

Expense -0.0025 0.0110 0.0126 0.0185

(0.0589) (0.0582) (0.0579) (0.0592)

Stdret -0.0502*** -0.0432** -0.0564*** -0.0559***

(0.0166) (0.0172) (0.0179) (0.0169)

Obj Flow 0.5293*** 0.5288*** 0.3542*** 0.3479***

(0.0795) (0.0787) (0.0615) (0.0616)

Constant 0.0115 0.0050 0.0152* 0.0071

(0.0184) (0.0185) (0.0081) (0.0081)

R-squared 0.346 0.346 0.359 0.359

Past Flows Yes Yes Yes Yes

Manager FE No No No No

Year-Month FE Yes Yes Yes Yes

43

Table VII. Portfolios Formed Based on Past Performance in the Other Fund

Portfolios are formed using fund 2 of the manager. We sort all fund 2s into quintiles, based on the past 12-

month Carhart (1997) alpha of the manager’s fund 1. Panel A sorts fund 2s on after-fee alpha of fund 1, and

Panel B sorts on before-fee alpha of the fund 1. In each quintile, portfolios are rebalanced monthly and held

for different time horizons t: 1 month, 3 months, 6 months, and 12 months. The portfolio returns are the

cumulative after-fee returns of fund 2s in the corresponding quintile. The portfolio alphas, reported in the

table, are calculated by regressing the portfolio returns on Carhart (1997) four factors using the whole sample

period. We use Newey-West standard errors with 3 lags; t-statistics are presented in parenthesis. *, **, and ***

denote 10%, 5%, and 1% significance, respectively.

Holding

Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) -0.0028** (-2.18) -0.0023* (-1.90) -0.0022* (-1.77) -0.0013 (-1.16)

2 -0.0012 (-1.53) -0.0012 (-1.56) -0.0011 (-1.60) -0.0011 (-1.62)

3 -0.0003 (-0.31) -0.0005 (-0.68) -0.0007 (-1.13) -0.0008 (-1.35)

4 -0.0004 (-0.48) -0.0004 (-0.57) -0.0004 (-0.49) -0.0004 (-0.51)

5 (Highest) 0.0019* (1.82) 0.0018* (1.68) 0.0014 (1.31) 0.0005 (0.51)

5-1 0.0047*** (3.95) 0.0042*** (3.60) 0.0035*** (3.38) 0.0019* (1.89)

Holding

Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) -0.0025** (-2.02) -0.0022* (-1.77) -0.0021* (-1.75) -0.0013 (-1.15)

2 -0.0014* (-1.69) -0.0012 (-1.48) -0.0010 (-1.40) -0.0010 (-1.50)

3 -0.0005 (-0.52) -0.0007 (-1.05) -0.0009 (-1.44) -0.0009 (-1.40)

4 -0.0002 (-0.30) -0.0004 (-0.54) -0.0003 (-0.40) -0.0004 (-0.54)

5 (Highest) 0.0018* (1.64) 0.0017 (1.59) 0.0013 (1.19) 0.0005 (0.49)

5-1 0.0043*** (3.75) 0.0039*** (3.46) 0.0034*** (3.29) 0.0018* (1.88)

44

Table VIII. Portfolios Formed Based on Past Performance in Both Funds and Basic Checks

Portfolios are formed using fund 2 of the manager. First, we sort all fund 2s into terciles based on their past

12-month performance (perf2). Within each tercile of perf2, we sort all funds into quintiles, based on the past

12-month performance of the manager’s fund 1 (perf1). All sorting is performed using returns after fees.

Finally, we take the equally-weighted average return of fund 2s, across the alpha2 terciles. Since we use

conditional double-sorts, the equal weighted returns to each quintile of past perf1 now controls for own-fund

return predictability.

In each quintile, portfolios are rebalanced monthly and held for different time horizons t: 1 month, 3 months,

6 months, and 12 months. The portfolio returns are the cumulative after-fee returns of fund 2s in the

corresponding quintile. Panel A presents alphas estimated with Carhart (1997) 4-factor model (both portfolio

returns and past performance measures are 4-factor alphas). We then present alphas from alternative models

where we include the Pastor and Stambaugh (2003) liquidity factor (Panel B) as well as short-term and long-

term reversal factors obtained from Prof. Kenneth French’s website (Panel C). Panel D reports results with 4-

factor alphas where portfolios are formed by sorting on style-adjusted returns. Panel E reports results with

style-adjusted returns where portfolios are formed by sorting on 4-factor alphas. We use Newey-West

standard errors with 3 lags; t-statistics are presented in parenthesis. *, **, and *** denote 10%, 5%, and 1%

significance, respectively.

Panel A. Conditional Double Sorts: Using Alphas (after fees) adjusted for 4-factor model

Holding Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) -0.0011 (-0.88) -0.0010 (-0.81) -0.0009 (-0.75) -0.0005 (-0.46)

2 -0.0014** (-2.08) -0.0012* (-1.80) -0.0011* (-1.66) -0.0009 (-1.28)

3 -0.0004 (-0.47) -0.0008 (-1.15) -0.0009 (-1.36) -0.0008 (-1.27)

4 -0.0013* (-1.70) -0.0008 (-0.95) -0.0009 (-1.22) -0.0009 (-1.25)

5 (Highest) 0.0017* (1.73) 0.0013 (1.51) 0.0008 (1.03) 0.0001 (0.04)

5-1 0.0028** (2.37) 0.0023** (2.02) 0.0017* (1.74) 0.0005 (0.56)

Panel B. Conditional Double Sorts: Using Alphas (after fees) adjusted for 5-factor model

Holding Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) -0.0012 (-0.98) -0.0012 (-1.00) -0.0011 (-0.97) -0.0007 (-0.75)

2 -0.0016** (-2.24) -0.0013** (-1.98) -0.0012* (-1.87) -0.0010 (-1.42)

3 -0.0006 (-0.68) -0.0009 (-1.28) -0.0009 (-1.51) -0.0009 (-1.56)

4 -0.0015* (-1.85) -0.0010 (-1.18) -0.0011 (-1.52) -0.0012 (-1.59)

5 (Highest) 0.0017* (1.68) 0.0012 (1.41) 0.0007 (0.86) -0.0001 (-0.17)

5-1 0.0029** (2.24) 0.0024** (2.01) 0.0018* (1.79) 0.0006 (0.68)

45

Panel C. Conditional Double Sorts: Using Alphas (after fees) adjusted for 7-factor model

Holding Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) -0.0009 (-0.83) -0.0009 (-0.86) -0.0009 (-0.85) -0.0006 (-0.61)

2 -0.0015** (-2.10) -0.0013* (-1.85) -0.0012* (-1.73) -0.0009 (-1.31)

3 -0.0006 (-0.64) -0.0008 (-1.20) -0.0009 (-1.38) -0.0008 (-1.42)

4 -0.0013* (-1.64) -0.0008 (-0.99) -0.0010 (-1.35) -0.0011 (-1.45)

5 (Highest) 0.0018* (1.90) 0.0013 (1.60) 0.0009 (1.08) 0.0001 (0.02)

5-1 0.0027** (2.35) 0.0023** (2.07) 0.0018* (1.83) 0.0006 (0.66)

Holding Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) -0.0021* (-1.94) -0.0024** (-2.08) -0.0027* (-2.33) -0.0027** (-2.33)

2 -0.0023** (-2.36) -0.0018* (-1.73) -0.0013 (-1.23) -0.0013 (-1.23)

3 -0.0012 (-1.27) -0.0008 (-0.99) -0.0006 (-0.85) -0.0006 (-0.85)

4 0.0003 (0.42) -0.0002 (-0.23) -0.0004 (-0.49) -0.0004 (-0.49)

5 (Highest) -0.0001 (-0.09) -0.0004 (-0.43) -0.0006 (-0.76) -0.0006 (-0.76)

5-1 0.0020* (1.65) 0.0020* (1.83) 0.0021* (1.94) 0.0021* (1.94)

Panel E. Conditional Double Sorts using Style-Adjusted Returns: Sorting on 4-factor Alphas

Holding Period 1-month 3-month 6-month 12-month

Quintiles Style-Adj t-stat Style-Adj t-stat Style-Adj t-stat Style-Adj t-stat

1 (Lowest) -0.0014* (-1.87) -0.0009 (-1.25) -0.0007* (-1.97) -0.0005 (-1.23)

2 -0.0016*** (-3.47) -0.0012*** (-2.83) -0.0013*** (-3.67) -0.0011*** (-2.59)

3 -0.0007 (-1.27) -0.0007* (-1.65) -0.0011* (-1.82) -0.0008 (-1.41)

4 -0.0012** (-2.13) -0.0007 (-1.41) -0.0005 (-1.15) -0.0005 (-1.27)

5 (Highest) 0.0004 (0.65) 0.0006 (1.58) 0.0001 (0.19) -0.0003 (-0.53)

5-1 0.0018* (1.81) 0.0014* (1.65) 0.0009 (1.62) 0.0002 (0.53)

46

Table IX. Portfolios Formed Based on Past Performance in Both Funds: Further Checks

We present further checks for the conditional double sort results presented in Table VIII. Panel A shows the

results at longer horizons: 15-month, 18-month, 21-month and 24-month (all skipping the most recent 6

months). In Panel B and C, we report double sort results using our placebo samples, that is, samples of funds

that are managed by different managers. Panel B uses the two funds (F1 and F2) in a period when they are

managed by different managers; Panel C replaces one of the manager’s funds (F2) with another fund that is in

the same fund family or has similar characteristics, but not managed by the same manager. We use Newey-

West standard errors with 3 lags; t-statistics are presented in parenthesis. *, **, and *** denote 10%, 5%, and

1% significance, respectively.

Panel A. Conditional Double Sorts: In Subsequent Horizons (skipping the most recent 6 months)

Holding

Period 15-month 18-month 21-month 24-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) 0.0001 (0.14) 0.0002 (0.16) 0.0002 (0.16) 0.0000 (0.02)

2 -0.0007 (-0.86) -0.0005 (-0.61) -0.0005 (-0.65) -0.0006 (-0.80)

3 -0.0009 (-1.29) -0.0009 (-1.34) -0.0009 (-1.42) -0.0009 (-1.42)

4 -0.0007 (-0.82) -0.0008 (-1.01) -0.0008 (-1.16) -0.0007 (-1.04)

5 (Highest) 0.0001 (0.14) 0.0001 (0.14) 0.0002 (0.19) 0.0003 (0.31)

5-1 -0.0000 (-0.02) -0.0001 (-0.05) -0.0000 (-0.01) 0.0002 (0.24)

Holding

Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) -0.0009 (-0.65) -0.0009 (-0.73) -0.0010 (-0.84) -0.0005 (-0.48)

2 -0.0006 (-0.56) -0.0009 (-0.89) -0.0015 (-1.59) -0.0012 (-1.31)

3 -0.0009 (-1.05) -0.0004 (-0.46) -0.0006 (-0.78) -0.0005 (-0.55)

4 -0.0005 (-0.54) -0.0008 (-0.87) -0.0005 (-0.51) -0.0002 (-0.23)

5 (Highest) 0.0005 (0.37) -0.0006 (-0.46) -0.0004 (-0.31) -0.0008 (-0.67)

5-1 0.0014 (0.76) 0.0003 (0.20) 0.0006 (0.60) -0.0002 (-0.23)

Holding

Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) 0.0001 (0.00) -0.0001 (-0.08) -0.0006 (-0.58) -0.0006 (-0.58)

2 -0.0012 (-1.19) -0.0008 (-0.93) -0.0009 (-1.14) -0.0009 (-1.14)

3 -0.0014 (-1.44) -0.0011 (-1.36) -0.0009 (-1.28) -0.0009 (-1.28)

4 -0.0013 (-1.46) -0.0012* (-1.66) -0.0006 (-0.77) -0.0006 (-0.77)

5 (Highest) 0.0018 (1.56) 0.0008 (0.82) 0.0006 (0.81) 0.0006 (0.81)

5-1 0.0018 (1.37) 0.0009 (0.96) 0.0012 (1.55) 0.0012 (1.55)

47

Table X. Regression of Future Performance on Past Performance

This table presents the results of the predictive regressions of future performance on past performance. The

dependent variable is Style-Adjusted Return. Alpha and Alpha2 are the risk-adjusted returns estimated using

Carhart (1997) four factor model and AlphaRank and Alpha2Rank are fractional performance ranks, ranging

from 0 (worst) to 1 (best). Low Rank and Low Rank2 indicate, respectively, that the own fund and the other

fund are in the lowest two performance quintiles. Alpha rank variables are interacted with dummy variables:

Uncommon, indicating that the two funds’ portfolio overlap is below the sample median; Highcorr, indicating

that the correlation of the two funds’ past 4-factor risk-adjusted return is above the sample median. We

present Fama-Macbeth estimates with Newey-West standard errors. All other variables are defined in Table

XIII. *, **, and *** denote 10%, 5%, and 1% significance, respectively.

AlphaRank 0.0037** 0.0035*** 0.0039***

(0.0015) (0.0013) (0.0012)

Alpha2Rank 0.0030*** 0.0012 0.0047**

(0.0011) (0.0016) (0.0024)

Low Rank -0.0010

(0.0007)

Low Rank2 -0.0016***

(0.0006)

Alpha2Rank x Uncommon 0.0032*

(0.0017)

Alpha2Rank x Highcorr -0.0022

(0.0025)

Uncommon -0.0001

(0.0012)

Highcorr 0.0002

(0.0016)

ln (Age) 0.0001 0.0001 -0.0001 0.0002

(0.0005) (0.0005) (0.0005) (0.0005)

ln (FundSize) -0.0004** -0.0004** -0.0003 -0.0004**

(0.0002) (0.0002) (0.0002) (0.0002)

Expense -0.0613 -0.0789** -0.0739* -0.0488

(0.0381) (0.0381) (0.0394) (0.0354)

Stdret 0.0806 0.0901 0.0779 0.0820

(0.0632) (0.0653) (0.0732) (0.0644)

Obj flow -0.0114 0.0371 -0.1555 -0.0175

(0.1745) (0.1819) (0.1822) (0.1715)

Constant -0.0030 0.0018 -0.0024 -0.0037

(0.0037) (0.0038) (0.0039) (0.0041)

Observations 19,318 19,318 17,706 19,318

R-squared 0.379 0.367 0.436 0.414

Past Flows Yes Yes Yes Yes

48

Table XI. Regression of Future Performance on Past Performance: Role of Frictions

This table presents the results of the predictive regressions of future performance on past performance. The

dependent variable is style-adjusted returns. Alpha and Alpha2 are the risk-adjusted returns estimated using

Carhart (1997) four factor model and AlphaRank and Alpha2Rank are fractional performance ranks, ranging

from 0 (worst) to 1 (best). Loads is a dummy variable that indicates whether the fund has any front-end or

back-end loads. The dummy variable, High12b1, indicates high 12b-1 fees charged by the other fund (in the

top tercile of the sample). We present Fama-Macbeth (1973) estimates with Newey-West standard errors. All

other variables are defined in Table XIII. *, **, and *** denote 10%, 5%, and 1% significance, respectively.

AlphaRank 0.0038** 0.0031*

(0.0015) (0.0018)

Alpha2Rank 0.0027** 0.0038**

(0.0013) (0.0017)

Alpha2Rank x Loads 0.0016

(0.0016)

Alpha2Rank x High12b1 -0.0039*

(0.0023)

Loads -0.0007

(0.0009)

High12b1 0.0021

(0.0015)

ln (Age) -0.0001 -0.0004

(0.0005) (0.0005)

ln (FundSize) -0.0004* -0.0001

(0.0002) (0.0002)

Expense -0.0640 -0.0668*

(0.0422) (0.0373)

Stdret 0.0740 0.0792

(0.0645) (0.0703)

Obj flow -0.0931 -0.1984

(0.1605) (0.1713)

Constant -0.0019 -0.0030

(0.0034) (0.0044)

Observations 19,318 14,104

R-squared 0.402 0.506

Past Flows Yes Yes

49

Table XII. Flow-Performance Regression in Multi-Funds: Role of Frictions

This table presents the results from flow-performance regressions, interacting alphas with Loads and

High12b1. Loads is a dummy variable that indicates whether the fund has any front-end or back-end loads.

The dummy variable, High12b1, indicates high 12b-1 fees charged by the other fund (in the top tercile of the

sample). The dependent variable is Flow, and Alpha and Alpha2 are the risk-adjusted returns of the fund and

of the other fund. We present results using ordinary least squares with errors clustered at the manager level.

Variable definitions are in Table XIII. *, **, and *** denote 10%, 5%, and 1% significance, respectively.

(0.0496) (0.0622)

Alpha2 0.0787* 0.0163

(0.0425) (0.0606)

Alpha2 x Loads -0.0342**

(0.0171)

Alpha2 x High12b1 0.1749*

(0.0996)

Loads -0.0008

(0.0007)

High12b1 0.0015*

(0.0008)

ln (Age) -0.0008** -0.0010**

(0.0004) (0.0004)

ln (FundSize) -0.0003* -0.0006**

(0.0002) (0.0002)

Expense 0.1199* 0.0500

(0.0687) (0.0707)

Stdret -0.0328* -0.0568***

(0.0176) (0.0188)

Obj Flow 0.2761*** 0.3184***

(0.0536) (0.0612)

Constant 0.0064 0.0127**

(0.0046) (0.0057)

R-squared 0.365 0.377

Past Flows Yes Yes

Year-Month FE Yes Yes

50

Table XIII. Variable Definitions

Flow Proportional monthly growth in total assets under management.

Alpha, Alpha2 Risk-adjusted return in the past 12 months, estimated using Carhart (1997) four factor

model. 2 denotes the other fund.

Low Alpha, For each month, a fractional rank (Rank) from 0 (worst) to 1 (best) is assigned to each

Low Alpha2 fund based on Alpha. Low Alpha = Min(Rank , 0.2). 2 denotes the other fund.

Mid Alpha, Mid Alpha = Min(0.6, Rank – Low Alpha). 2 denotes the other fund.

Mid Alpha2

High Alpha, High Alpha = Rank – Mid Alpha – Low Alpha. 2 denotes the other fund.

High Alpha2

Stdret Standard deviation of fund raw returns in the past 12 months.

ln (Age) Natural logarithm of (1+ fund age).

ln (FundSize) Natural logarithm of fund’s total net assets under management.

Expense Expense ratio plus one-seventh of the front-end load.

Obj Flow Total monthly flows into the corresponding objective of the fund.

StyleRank A dummy variable that indicates Style Difference is above the historical median. Style

Difference is the sum of the absolute percentage differences of Carhart (1997) four

factor loadings between the two funds.

VolRank, A dummy variable that indicates Stdret is above the sample median. 2 denotes the

Vol2Rank other fund.

OneVolatileFund In every month, all managers are ranked based on whether they have at least one fund

with VolRank = 1. OneVolatileFund is a dummy variable that indicates the manager

ranks above the median manager.

TimeManageRank A dummy variable that indicates the latter half of the manager’s tenure in the fund-

pair.

Family Alpha Average Alpha of all funds in the family, excluding Fund 1 (or excluding Fund 1 and

Fund 2).

Star Manager A dummy variable that represents stellar performance (top 5% based on past alpha) of

other funds in the family, following Nanda, Wang, and Zheng (2004).

Style Adjusted The raw return minus the average return on all funds in the corresponding objective.

Return

AlphaRank, For each month, a fractional rank (Rank) from 0 (worst) to 1 (best) is assigned to each

Alpha2Rank fund based on Alpha. 2 denotes the other fund.

LowRank, A dummy variable that indicates Rank is in the lowest two quintiles. 2 denotes the

LowRank2 other fund.

Uncommon A dummy variable that indicates the two funds’ portfolio overlap is below the sample

median.

Highcorr A dummy variable that indicates the correlation of the two funds’ past 4-factor risk-

adjusted return is above the sample median.

Loads A dummy variable that indicates the fund has any front-end or back-end loads.

High12b1 A dummy variable that indicates high 12b-1 fees charged by the other fund (in the top

tercile of the sample).

51

Appendix A. Derivations and Proofs

(i) We ﬁrst show the derivation of equation (10). From equation (9),

= [P0 μ0 + S((T − 1)RT −1 + RT )]

= [P0 μ0 + S(T − 1)RT −1 ] + SRT

= [P0 + (T − 1)S]μT −1 + SRT

= [P0 + T S]μT −1 + S[RT − μT −1 ]

c(q1,T −1 )

= [P0 + T S]μT −1 + S[RT − ] , from equation (8)

c(q2,T −1 )

= [P0 + T S]μT −1 + SrT , from equation (3)

That is, μT = μT −1 + [P0 + T S]−1 SrT . (10)

(ii) Equation (12) is derived as follows. The precision matrices, S ≡ Ω−1 and P0 ≡ Σ0 −1 ,

are equal to

−1

1

V1 0 0

S ≡ Ω−1 = = V1 1 ;

0 V2 0 V2

−1

W1 W12 1 W2 −W12

P0 ≡ Σ−1

0 = = ;

W12 W2 d −W12 W1

2

where d = W1 W2 − W12 .

From equation (11),

c(q1T ) − c(q1,T −1 )

= μT − μT −1 = [P0 + T S]−1 SrT

c(q2T ) − c(q2,T −1 )

−1

W2

d

+ T

V1

− W12

d

r1T

V1

=

− Wd12 W1

d

+ T

V2

r2T

V2

−1

1 −1 W2 + TV1d −W12 r1T

V1

=( )

d −W12 W1 + V2 Td r2T

V2

Td r1T

d W1 + V2 W12 V1

= Td r2T

; (A1)

Δ W12 W2 + V1 V2

52

Td Td 2

where Δ = (W1 + )(W2 + ) − W12

V2 V1

2 2

2 T d W1 W 2

= W1 W2 − W12 + + T d( + )

V1 V2 V1 V2

T 2 d2 W1 W2

=d+ + T d( + ) > 0.

V1 V2 V1 V2

For Fund 1,

c(q1T ) − c(q1,T −1 ) = A1 r1T + A2 r2T ; (12)

Td

d W1 + V2

where A1 = ;

Δ V1

d W12

A2 = .

Δ V2

(iii) Proof of Proposition 1: Since d and Δ are determinants of matrices, they must be

positive. All the other terms in A1 are positive by deﬁnition. A2 is positive as long as

the covariance of the beliefs, W12 , is positive.

Td Td

d W1 + V2

W1 + V2

A1 = = T 2d

;

Δ V1 V1 [1 + V1 V2

+ T (W 1

V1

+ W2

V2

)]

d W12 W12

A2 = = T 2d

; (A2)

Δ V2 V2 [1 + V1 V2

+ T (W

V1

1

+ W2

V2

)]

2

where d = W1 W2 − W12 . As W12 increases, d decreases; the numerator of A2 increases

and the denominator decreases. A2 should be higher (more positive) if W12 is more

positive.

The relationship between A1 and W12 is given by

∂A1 ∂A1

Sign( ) = Sign(V1 )

∂d ∂d

2 Td T2

[1 + VT1 Vd2 + T ( W

V1

1

+WV2

2

)] VT2 − (W1 + )

V2 V1 V2

= Sign( 2 )

[1 + VT1 Vd2 + T ( WV1

1

+W 2

V2

)]2

[1 + T W 2 T

]

V2 V2

= Sign( T 2d W2 2

) > 0.

[1 + V1 V2

+ T (W

V1

1

+ V2

)]

2

Again, d = W1 W2 − W12 . Therefore, A1 increases with d and decreases with W12 .

53

(v) Proof of Proposition 3: From equation (A2), A2 increases with V1 (the variance of R1t )

as the denominator decreases; A1 decreases with V1 as the denominator increases.

Also from equation (A2), A2 decreases with V2 (the variance of R2t ) as the denominator

increases.

The relationship between A1 and V2 is given by

∂A1 ∂A1

Sign( ) = Sign(V1 )

∂V2 ∂V2

T 2d W1 W2 T d T d 1 T 2d

= Sign(−[1 + + T( + )] 2 + (W1 + ) ( + T W2 ))

V1 V2 V1 V2 V2 V2 V22 V1

T d T 3 d2 T 2 dW1 T 2 dW2 T 2 dW1 T W1 W2 T 3 d2 T 2 dW2

= Sign(− 2 − − − + + + + )

V2 V1 V23 V1 V22 V23 V1 V22 V22 V1 V23 V23

T d T W1 W2

= Sign(− 2 + )

V2 V22

T

= Sign( 2 (W1 W2 − d))

V2

2

= Sign(W1 W2 − W1 W2 + W12 ) > 0.

(vi) Proof of Proposition 4: From equation (A2), A2 decreases with T as the denominator

increases. The relationship between A1 and T is given by

∂A1 ∂A1

Sign( ) = Sign(V1 )

∂T ∂T

T 2d W1 W2 d T d 2T d W1 W2

= Sign([1 + + T( + )] − (W1 + )( + + ))

V1 V2 V1 V2 V2 V2 V1 V2 V1 V2

d T 2 d2 T dW1 T dW2 2T dW1 W12 W1 W2 2T 2 d2 T dW1 T dW2

= Sign( + + + − − − − − − )

V2 V1 V22 V1 V2 V22 V1 V2 V1 V2 V1 V22 V1 V2 V22

d T 2 d2 2T dW1 W12 W1 W2

= Sign( − − − − )

V2 V1 V22 V1 V2 V1 V2

T 2 d2 2T dW1 W12 W1 W2 − d

= Sign(− − − − )

V1 V22 V1 V2 V1 V2

T 2 d2 2T dW1 W12 W12 2

= Sign(− − − − ) < 0.

V1 V22 V1 V2 V1 V2

In this extension, the investor’s expectation operator, E I [.] is diﬀerent from the fully

rational and frictionless (“true”) expectation operator, E[.]. The former is the expectations

54

operator under investors’ beliefs and information sets. We discuss three possible channels

for investor learning to be not fully rational and frictionless. First, transactions costs such

as front-end and back-end loads make it more costly for investors to allocate their capital

accord to the signals. The second channel refers to investors operating under an incomplete

(not completely updated) information set and having to use the last available information,

which might diﬀer from current information. The third channel is about investors believing

(incorrectly) that the optimal update rule involves putting a weight on their prior which

turns out to be “too high” under Bayesian rules.

From investors’ point of view, they still try to competitively allocate capital to funds so

that all funds earn zero expected excess net returns, under their expectations. Therefore,

ETI [ri,T +1 ] = 0,

R 1,T +1 − c(q 1T ) C(qit )

i.e., ETI [ ] = 0, where c(qit ) ≡ + f;

R2,T +1 − c(q2T ) qit

c(q 1T )

ETI [RT +1 ] = . (A3)

c(q2T )

Denote the expected gross returns under the investors’ beliefs and information at time T as

μIT . We have

c(q 1T )

μIT ≡ ETI [RT +1 ] = . (A4)

c(q2T )

These equations correspond to equations (6)–(8) in Section I.A. Recall that under the

fully rational and frictionless model in Section I, from equation (13) we have

μT = {I − M }μT −1 + M RT , (A5)

information, we modify equation (A5):

μIT = {I − kM }μIT −1 + kM RT

= μIT −1 + kM [RT − μIT −1 ], (A6)

55

where 0 < k < 1.31 Applying equation (A4),

c(q 1,T −1 )

μIT = μIT −1 + kM [RT − ]

c(q2,T −1 )

= μIT −1 + kM rT , from equation (3) (A7)

This corresponds to equation (10) in Section I.A, specifying how investors update the poste-

rior means of their beliefs on ψψ12 . We are again interested in investors’ ﬂows into and out

of Funds 1 and 2. As in Section I.A, we examine the change in the unit cost. From equations

(A4) and (A7),

c(q1T ) − c(q1,T −1 )

= kM rT

c(q2T ) − c(q2,T −1 )

r1T

d W1 + TV2d W12 V1

=k r2T

, from equation (A1) (A8)

Δ W12 W2 + TV1d V2

For Fund 1,

d T d r1T r2T

c(q1T ) − c(q1,T −1 ) = k [(W1 + ) + W12 ]. (A9)

Δ V2 V1 V2

To simplify the exposition that follows, several additional assumptions and notations are

used. First, we assume that the size of the funds, q, at time T − 1 is the same across the

two models: the fully rational and frictionless model in Section I.A and the model extension

with frictions here. Second, we denote the size of the fund at time T as q R and q I , for the

models in Section I.A and here, respectively.

As argued in Section I.A, ﬂows into Fund 1 are monotonically increasing in the change

in the unit cost. Denote the change in the unit cost under the rational and frictionless

R

equilibrium as F1T . From equation (12), ﬂows into Fund 1 at time T under the rational and

frictionless equilibrium are increasing in

d T d r1T r2T

R

F1T ≡ c(q1T

R

) − c(q1,T −1 ) = [(W1 + ) + W12 ]

Δ V2 V1 V2

= A1 r1T + A2 r2T . (A10)

I

Denote the change in the unit cost under the equilibrium with frictions as F1T . From equation

31

While we model the biased update in a multiplicative manner (kM ), modeling it in an additive way

(e.g., M − kI) gives the same conclusion.

56

(A9), flows into Fund 1 at time T under the equilibrium with frictions are increasing in

I I d T d r1T r2T

F1T ≡ c(q1T ) − c(q1,T −1 ) = k [(W1 + ) + W12 ]

∆ V2 V1 V2

= kA1 r1T + kA2 r2T . (A10’)

Recall that 0 < k < 1 captures the degree of overweighting on the prior and underweighting

on new information (a smaller k indicates a larger deviation from the rational and frictionless

benchmark). Therefore, the responses in flows to the own fund and to other fund are more

insufficient as k is smaller. Note that, however, the cross-sectional predictions from our

baseline model (Propositions 2 to 4) still hold, even under the updating rule in equation

(A6).

Now, we consider the return on Fund 1. From equation (3), r1,T +1 = R1,T +1 − c(q1T ) =

R1,T +1 − cq1,T − f . The “true” expected future excess net return under fully rational and

frictionless conditions is

R

E[r1,T +1 ] = E[R1,T +1 ] − c(q1T ) − f = 0. (A11)

On the other hand, the true expected future excess net return under investors’ updating rule

in equation (A6) is

I

E[r1,T +1 ] = E[R1,T +1 ] − c(q1T )−f

R R I

= E[R1,T +1 ] − c(q1T ) − f + c(q1T ) − c(q1T )

R I

= c(q1T ) − c(q1T )

R I

= F1T + c(q1,T −1 ) − F1T − c(q1,T −1 )

= (1 − k)A1 r1T + (1 − k)A2 r2T . (A12)

As 0 < k < 1, we will observe positive own-fund and positive cross-fund predictability.

Although we do not model the underlying investor behavior and the incomplete informa-

tion environment, related papers indicate that equation (A6) is a reasonable approximation.

The parameter k parsimoniously captures the behavioral bias that investors place too much

weight on priors, and Brav and Heaton (2002) show that this is analogous to a case where

rational investors do not have complete information of the fundamentals.

57

Appendix C. Procedures for Constructing a Placebo

Sample

Let F1 be the fund in quesion and F2 be the manager’s other fund. We ﬁnd a control fund,

M2, that matches F2 based on family information and fund characteristics. In particular,

when each multi-fund manager starts managing two funds, we ﬁnd a match from the universe

of single-manager funds using the following:

(i) We pick funds (in the same month) that come from the same family and whose assets

are 25%–200% of the multi-fund manager’s fund F2.

(ii) In the event that there is no eligible fund in (i) (family information is missing, or there

are no family funds with 25%–200% assets), we pick funds (in the same month) whose

assets are 90%–110% of the multi-fund manager’s fund F2.32

Score = abs( − 1)

Standard Deviation

Eligible Fund’s Fund Age

+ abs( − 1)

Fund Age

Eligible Fund’s Expense

+ abs( − 1).

Expense

We pick the fund with the lowest Score to be M2. The same M2 is used throughout the

manager’s tenure in the two funds.

32

The results are robust if we skip this step and only use same-family funds. The ﬂow-performance

results and the cross-fund predictability results using same-family placebo funds are reported in the Internet

Appendix (Table IA.VIII).

58

Learning About Mutual Fund Managers

Internet Appendix

First, an alternative definition of F lowit is used as the dependent variable in the flow-

performance regression (equation (15)):

F lowit = .

T N Ai,t−1 (1 + Rit )

Flows will not be lower than −100% using this measure. Table IA.I repeats Column

(1)–(4) in Table III, and the results are very similar.

IA.II. Months with less than 25 observations are excluded. Table IA.III conducts further

checks: Columns (1) and (2) use the sample of managers that have two funds only (which

constitute about 85% of the full sample), while Columns (3) and (4) use style-adjusted

returns instead of four-factor alphas as performance variables. The style-adjusted return is

calculated as the monthly return on the fund, in excess of the average return on all funds

in the same CRSP investment objective code from the prior 12 months. The variables Low,

M id, and High of the funds are defined based on the fractional performance rank in style-

adjusted returns. As in Table III, Tables IA.II and IA.III show that flows into a fund are

?

Author Contact Information: Darwin Choi, Hong Kong University of Science and Technology, Clear

Water Bay, Kowloon, Hong Kong, dchoi@ust.hk. Bige Kahraman, Park End Street, Oxford OX1 1HP,

United Kingdom, bige.kahraman@sbs.ox.ac.uk. Abhiroop Mukherjee, Hong Kong University of Science

and Technology, Clear Water Bay, Kowloon, Hong Kong, amukherjee@ust.hk

1

predicted by past performance in the manager’s other fund, particularly when the other fund

has performed particularly well.

Table IA.IV uses flows into funds in the same style (StyleF low) as an alternative control

variable, replacing ObjF low (average flows into funds in the same objective) in Table III.

We do this in case some funds follow investment styles that are different from the objectives

stated in their prospectus. StyleF low is the average flows into funds in the same style group

in month t. The style group is defined by the estimated Carhart (1997) four-factor loadings:

for each factor loading, we independently divide all CRSP funds into above and below the

sample median in month t; so there are a total of 24 = 16 style groups. We report in Table

IA.IV the panel regressions using StyleF low as an independent variable, as well as the panel

regressions using style-adjusted flows (defined as Flows minus StyleF low) as the dependent

variable. The results are similar to those in Table III.

As noted in footnote 14 in the main text, related studies in this literature have used a

number of data sources to identify fund managers, and CRSP is one of them. While recent

work points out the problems with CRSP, some of their concerns do not apply to our paper

because we have hand-cleaned our data using public information available outside of CRSP:

we take into account spelling differences and format changes, as well as look up information

on funds and managers from the Internet, as in Kacperczyk and Seru (2007). Here we conduct

a robustness check by validating the information from our data with that from Morningstar

Direct. To merge CRSP with Morningstar Direct, we follow the procedure described by

Pastor, Stambaugh, and Taylor (2015), which requires information on a fund’s ticker, CUSIP,

and name. We repeat our main flow-performance and return regressions (equations (15) and

(16)) using a new sample where our cleaned CRSP data agree with Morningstar Direct. The

results are reported in Table IA.V. Our conclusions remain unchanged.

Table IA.VI runs the return regression (equation (16)) using one-month-ahead risk factor-

2

adjusted return as the dependent variable, instead of StyleAdjustedReturnt+1 :

+ βU M D U M Dt+1 ).

rt+1 is the raw return of fund i in month t + 1 (the subscript i is dropped). The factor

loadings, β, are estimated using the Carhart (1997) model that also calculates Alpha. The

results are very similar to those in Table X.

Table IA.VII repeats the double portfolio sort in Table VIII, Panel A for a 1-month

holding period. All Fund 2s are sorted into terciles based on their past four-factor alphas.

Within each tercile, we then sort funds into quintiles based on the past alphas of the man-

ager’s Fund 1. The portfolio alphas are then calculated using the entire sample period. All

portfolio alphas are shown, without averaging across terciles. We see that the results come

mostly from terciles 1 and 2 (the lower two terciles).

Finally, Table IA.VIII shows the placebo results using same-family funds that are man-

aged by different managers. In Sections III.C and IV.B, for funds that have no family

information or no eligible same-family funds, we use a matching fund that has similar char-

acteristics. Here we require that the matching fund comes from the same family. As in the

main text (Table VI Columns (3) and (4) and Table IX, Panel C), we do not see a significant

cross-fund flow-performance relationship and cross-fund predictability.

3

Table IA.I. Flow-Performance Regression in Multi-Funds: Using an Alternative Flow Definition

This table presents the results from flow-performance regressions using an alternative flow definition:

்ே ି்ேǡషభ ሺଵାோ ሻ

ݓ݈ܨ௧ ൌ . In columns (3) and (4), we use a piecewise linear specification. For each

்ேǡషభ ሺଵାோ ሻ

month, we assign a fractional rank from 0 (worst) to 1 (best) to each fund, and define: Low Alpha =

Min(Rank , 0.2), Mid Alpha = Min(0.6, Rank – Low Alpha), and High Alpha = Rank – Mid Alpha – Low

Alpha. Standard errors are clustered at the manager level. All other variables are defined in Table XIII. *, **,

and *** denote 10%, 5%, and 1% significance, respectively.

(0.0514) (0.1637)

Alpha2 0.0738** 0.0823**

(0.0371) (0.0368)

Low Alpha 0.0174*** 0.0164**

(0.0059) (0.0068)

Mid Alpha 0.0084*** 0.0094***

(0.0015) (0.0017)

High Alpha 0.0387*** 0.0475***

(0.0100) (0.0119)

Low Alpha2 0.0102 0.0063

(0.0067) (0.0075)

Mid Alpha2 -0.0025 -0.0029

(0.0017) (0.0019)

High Alpha2 0.0204** 0.0232***

(0.0082) (0.0089)

Alpha x Stdret -1.7290*

(1.0161)

Alpha x ln (Age) -0.0990**

(0.0467)

ln (Age) -0.0009** -0.0010*** -0.0009** -0.0001

(0.0004) (0.0004) (0.0004) (0.0006)

ln (FundSize) -0.0003* -0.0003 -0.0003 -0.0021***

(0.0002) (0.0002) (0.0002) (0.0004)

Expense 0.0723 0.0735 0.0709 -0.0132

(0.0576) (0.0573) (0.0580) (0.1010)

Stdret -0.0347** -0.0341** -0.0424** -0.0124

(0.0170) (0.0166) (0.0169) (0.0448)

Obj Flow 0.2898*** 0.2924*** 0.2884*** 0.4134***

(0.0552) (0.0558) (0.0561) (0.0675)

Constant 0.0079 0.0084 -0.0009 0.0131*

(0.0054) (0.0054) (0.0055) (0.0072)

R-squared 0.355 0.355 0.355 0.266

Past Flows Yes Yes Yes Yes

Manager FE No No No Yes

Year-Month FE Yes Yes Yes Yes

4

Table IA.II. Flow-Performance Regression in Multi-Funds using Fama-MacBeth Regressions

This table presents the results from flow-performance regressions using Fama-Macbeth regressions. The

dependent variable, Flow, is the proportional monthly growth in total assets under management. Alpha and

Alpha2 are the risk-adjusted returns of the fund and of the other fund. In column (4), we use a piecewise

linear specification. For each month, we assign a fractional rank from 0 (worst) to 1 (best) to each fund, and

define: Low Alpha = Min(Rank , 0.2), Mid Alpha = Min(0.6, Rank – Low Alpha ), and High Alpha = Rank –

Mid Alpha – Low Alpha . We use Newey-West standard errors with 6 lags. All other variables are defined in

Table XIII. *, **, and *** denote 10%, 5%, and 1% significance, respectively.

(0.0633) (0.3955)

Alpha2 0.1468*** 0.1468**

(0.0539) (0.0612)

Low Alpha 0.0176**

(0.0083)

Mid Alpha 0.0061***

(0.0015)

High Alpha 0.0376***

(0.0105)

Low Alpha2 0.0030

(0.0071)

Mid Alpha2 0.0003

(0.0017)

High Alpha2 0.0152**

(0.0076)

Alpha x Stdret -13.1980***

(4.2961)

Alpha x ln (Age) -0.2702***

(0.0920)

ln (Age) -0.0014** -0.0014** -0.0013**

(0.0005) (0.0005) (0.0006)

ln (FundSize) -0.0005** -0.0005** -0.0004

(0.0002) (0.0002) (0.0003)

Expense 0.0305 0.0468 0.0405

(0.0554) (0.0537) (0.0620)

Stdret 0.0080 -0.0276 -0.0188

(0.0398) (0.0470) (0.0403)

Obj Flow 0.2501 0.2513 0.2312

(0.3357) (0.3397) (0.3136)

Constant 0.0106*** 0.0107*** 0.0033

(0.0034) (0.0033) (0.0039)

R-squared 0.545 0.570 0.577

Past Flows Yes Yes Yes

5

Table IA.III. Flow-Performance Regression in Multi-Funds: Further Checks

This table presents further checks for the results of flow-performance regressions using ordinary least

squares. Column (1) and (2) use the sample of managers that have only two funds; Column (3) and (4) use

style-adjusted returns instead of four-factor alphas as performance variables. The dependent variable, Flow, is

the proportional monthly growth in total assets under management. We use a piecewise linear specification.

For each month, we sort funds based on their performances and assign a fractional rank from 0 (worst) to 1

(best). Then, we define: Low Perf = Min(Rank , 0.2), Mid Perf = Min(0.6, Rank – Low Perf), and High Perf

= Rank – Mid Perf – Low Perf. In column (1) and (2) we sort on four-factor alphas, and in Column (3) and

(4) we sort on style-adjusted returns. Standard errors are clustered at the manager level. All other variables are

defined in Table XIII. *, **, and *** denote 10%, 5%, and 1% significance, respectively.

VARIABLES Alpha Alpha Style-Adj Style-Adj

(0.0537) (0.0441)

Perf2 0.0715* 0.0634*

(0.0407) (0.0364)

Low Perf 0.0143** 0.0139**

(0.0059) (0.0061)

Mid Perf 0.0089*** 0.0166***

(0.0016) (0.0017)

High Perf 0.0300*** 0.0485***

(0.0096) (0.0109)

Low Perf2 0.0109 0.0017

(0.0072) (0.0063)

Mid Perf2 -0.0018 0.0000

(0.0017) (0.0015)

High Perf2 0.0150** 0.0177*

(0.0076) (0.0101)

ln (Age) -0.0008** -0.0008** -0.0011*** -0.0011***

(0.0004) (0.0004) (0.0004) (0.0004)

ln (FundSize) -0.0005** -0.0005** -0.0004** -0.0004**

(0.0002) (0.0002) (0.0002) (0.0002)

Expense 0.0204 0.0249 0.0956*** 0.0905***

(0.0597) (0.0605) (0.0100) (0.0092)

Stdret -0.0321* -0.0406** -0.0108 -0.0455**

(0.0174) (0.0176) (0.0205) (0.0196)

Obj Flow 0.2908*** 0.2922*** 0.2908*** 0.3090***

(0.0610) (0.0610) (0.0579) (0.0576)

Constant 0.0127*** 0.0042 -0.0129*** -0.0190***

(0.0049) (0.0050) (0.0017) (0.0024)

R-squared 0.371 0.372 0.354 0.358

Past Flows Yes Yes Yes Yes

Manager FE No No No No

Year-Month FE Yes Yes Yes Yes

6

Table IA.IV. Flow-Performance Regression in Multi-Funds: Controlling for Style Chasing

This table presents the results from flow-performance regressions controlling for Style Flow. Style Flow is the

average flows into funds in the same style group in month t where the style group is defined by the estimated

Carhart (1997) four-factor loadings. In columns (1)-(4), the dependent variable is Flow, which is the

proportional monthly growth in total assets under management; the dependent variable in columns (5)-(8) is

Adjusted Flow which is the Flow minus the Style Flow of the fund’s style. Columns (1)-(4) includes Style

Flow as an independent variable. Alpha and Alpha2 are the risk-adjusted returns of the fund and of the other

fund. In columns (3)-(4) and (7)-(8), we use a piecewise linear specification. For each month, we assign a

fractional rank from 0 (worst) to 1 (best) to each fund, and define: Low Alpha = Min(Rank , 0.2), Mid Alpha

= Min(0.6, Rank – Low Alpha), and High Alpha = Rank – Mid Alpha – Low Alpha. Standard errors are

clustered at the manager level. All other variables are defined in Table XIII. *, **, and *** denote 10%, 5%,

and 1% significance, respectively.

7

Flow Adjusted Flow

VARIABLES (1) (2) (3) (4) (5) (6) (7) (8)

(0.0475) (0.1604) (0.0477) (0.1583)

Alpha2 0.0762** 0.0846** 0.0775** 0.0849**

(0.0369) (0.0367) (0.0376) (0.0374)

Low Alpha 0.0168*** 0.0163** 0.0165*** 0.0164**

(0.0057) (0.0066) (0.0056) (0.0066)

Mid Alpha 0.0084*** 0.0094*** 0.0079*** 0.0089***

(0.0014) (0.0016) (0.0014) (0.0016)

High Alpha 0.0363*** 0.0446*** 0.0360*** 0.0437***

(0.0094) (0.0111) (0.0095) (0.0112)

Low Alpha2 0.0114* 0.0079 0.0124* 0.0091

(0.0066) (0.0075) (0.0066) (0.0075)

Mid Alpha2 -0.0025 -0.0029* -0.0025 -0.0029

(0.0016) (0.0018) (0.0016) (0.0018)

High Alpha2 0.0194** 0.0220** 0.0184** 0.0208**

(0.0079) (0.0086) (0.0080) (0.0086)

Alpha x Stdret -2.0977** -1.7942*

(0.9356) (0.9168)

Alpha x ln (Age) -0.0668 -0.0623

(0.0455) (0.0455)

ln (Age) -0.0009** -0.0009** -0.0008** -0.0000 -0.0009*** -0.0010*** -0.0009** -0.0001

(0.0004) (0.0004) (0.0004) (0.0006) (0.0003) (0.0004) (0.0003) (0.0006)

ln (FundSize) -0.0005** -0.0004** -0.0004** -0.0023*** -0.0004** -0.0004* -0.0004* -0.0022***

(0.0002) (0.0002) (0.0002) (0.0004) (0.0002) (0.0002) (0.0002) (0.0004)

Expense 0.0548 0.0569 0.0542 -0.0463 0.0568 0.0585 0.0558 -0.0512

(0.0545) (0.0544) (0.0550) (0.0963) (0.0549) (0.0548) (0.0554) (0.0952)

Stdret -0.0263 -0.0236 -0.0327* 0.0046 -0.0190 -0.0170 -0.0251 0.0153

(0.0175) (0.0169) (0.0175) (0.0423) (0.0175) (0.0170) (0.0175) (0.0417)

Style Flow 0.4640*** 0.4631*** 0.4631*** 0.4912***

(0.0408) (0.0406) (0.0405) (0.0452)

Constant 0.0077 0.0082 -0.0011 0.0154** 0.0097* 0.0100* 0.0009 0.0171**

(0.0053) (0.0053) (0.0054) (0.0073) (0.0057) (0.0058) (0.0058) (0.0077)

R-squared 0.372 0.373 0.373 0.284 0.326 0.326 0.326 0.238

Past Flows Yes Yes Yes Yes Yes Yes Yes Yes

Manager FE No No No Yes No No No Yes

Year-Month FE Yes Yes Yes Yes Yes Yes Yes Yes

8

Table IA.V. Robustness Check with Morningstar

This table presents the results Panel A presents results from flow-performance regressions using the same

methodology as in Table III (columns (1)-(4)). In this panel, the dependent variable is Flow, which is the

proportional monthly growth in total assets under management; Alpha and Alpha2 are the risk-adjusted

returns of the fund itself and of the other fund. In columns (3)-(4), we use a piecewise linear specification.

For each month, we assign a fractional rank from 0 (worst) to 1 (best) to each fund, and define: Low Alpha =

Min(Rank, 0.2), Mid Alpha = Min(0.6, Rank – Low Alpha), and High Alpha = Rank – Mid Alpha – Low

Alpha. Standard errors are clustered at the manager level. Panel B presents the results of the predictive

regressions of future performance on past performance, using the same methodology as Table X (column

(1)). The dependent variable in column (1) is Style-Adjusted Return, and in column (2) is Risk Adjusted

Return -- the raw return minus the factor loadings times realized factor premiums in the next month. The

factor loadings are estimated from the preceding 12 months using Carhart (1997) four-factor model.

AlphaRank and Alpha2Rank are fractional performance ranks, ranging from 0 (worst) to 1 (best), based on

the 4-factor alphas in the 2 funds. In this panel, we present Fama-Macbeth estimates with Newey-West

standard errors. All other variables are defined in Table XIII. Throughout this table *, **, and *** denote

10%, 5%, and 1% significance, respectively.

9

Panel A: Flow-Performance Regression in Multi-Funds

Flow

VARIABLES (1) (2) (3) (4)

(0.0576) (0.1851)

Alpha2 0.0988** 0.1067**

(0.043) (0.0425)

Low Alpha 0.0111 0.0084

(0.0069) (0.0074)

Mid Alpha 0.0098*** 0.0114***

(0.0017) (0.0019)

High Alpha 0.0397*** 0.044***

(0.0107) (0.0121)

Low Alpha2 0.0124* 0.0081

(0.0068) (0.0078)

Mid Alpha2 -0.0022 -0.0026

(0.0017) (0.0019)

High Alpha2 0.0188** 0.0189**

(0.0089) (0.0096)

Alpha x Stdret -2.1567**

(1.0735)

Alpha x ln (Age) -0.0494

(0.0502)

ln (Age) -0.0009** -0.001** -0.001** 0.0000

(0.0004) (0.0004) (0.0004) (0.0007)

ln (FundSize) -0.0004* -0.00037 -0.00036 -0.0022***

(0.0002) (0.00023) (0.00023) (0.0005)

Expense 0.0177 0.0209 0.0174 0.0406

(0.0614) (0.0611) (0.0602) (0.1119)

Stdret -0.0093 -0.0041 -0.0174 -0.021

(0.02) (0.0187) (0.0195) (0.051)

Obj Flow 0.4531*** 0.4527*** 0.4517*** 0.4889***

(0.049) (0.0487) (0.0485) (0.0535)

Constant 0.0059 0.0062 -0.0033 0.0157*

(0.0061) (0.0062) (0.0063) (0.0089)

R-squared 0.368 0.369 0.369 0.273

Past Flows Yes Yes Yes Yes

Manager FE No No No Yes

Year-Month FE Yes Yes Yes Yes

10

Panel B: Regressions of Future Performance on Past Performance

(1) (2)

VARIABLES Style-Adjusted Return Risk-Adjusted Return

(0.0018) (0.0024)

Alpha2Rank 0.0036** 0.0029*

(0.0018) (0.0017)

ln (Age) -0.0003 -0.0001

(0.0005) (0.0005)

ln (FundSize) -0.0003 -0.0001

(0.0002) (0.0002)

Expense -0.0892** -0.1176***

(0.0453) (0.041)

Stdret 0.0845 0.08

(0.0651) (0.0498)

Obj Flow -0.1995 -0.0119

(0.1602) (0.2183)

Constant -0.0023 -0.0072**

(0.0036) (0.0031)

Observations 14,797 14,797

R-squared 0.42 0.379

Past Flows Yes Yes

11

Table IA.VI. Regression of Future Performance on Past Performance: Alphas as Dependent Variables

This table presents the results of the predictive regressions of future performance on past performance. The

dependent variable, Risk Adjusted Return, is the raw return minus the factor loadings times realized factor

premiums in the next month. The factor loadings are estimated from the preceding 12 months using Carhart

(1997) four-factor model. Alpha and Alpha2 are the risk-adjusted returns estimated using Carhart (1997) four

factor model and AlphaRank and Alpha2Rank are fractional performance ranks, ranging from 0 (worst) to 1

(best). Low Rank and Low Rank2 indicate, respectively, that the own fund and the other fund are in the

lowest two performance quintiles. Alpha rank variables are interacted with dummy variables: Uncommon,

indicating that the two funds’ portfolio overlap is below the sample median; Highcorr, indicating that the

correlation of the two funds’ past 4-factor risk-adjusted return is above the sample median. Loads is a dummy

variable that indicates whether the fund has any front-end or back-end loads. The dummy variable, High12b1,

indicates high 12b-1 fees charged by the other fund (in the top tercile of the sample). We present Fama-

Macbeth estimates with Newey-West standard errors. All other variables are defined in Table XIII. *, **, and

*** denote 10%, 5%, and 1% significance, respectively.

12

VARIABLES (1) (2) (3) (4) (5) (6)

(0.0020) (0.0018) (0.0018) (0.0020) (0.0031)

Alpha2Rank 0.0023** 0.0017 0.0039** 0.0024** 0.0036*

(0.0011) (0.0019) (0.0019) (0.0014) (0.0021)

Low Rank -0.0019***

(0.0007)

Low Rank2 -0.0010*

(0.0006)

Alpha2Rank x Uncommon 0.0026**

(0.0013)

Alpha2Rank x Highcorr -0.0020

(0.0023)

Alpha2Rank x Loads 0.0007

(0.0016)

Alpha2Rank x High12b1 -0.0024*

(0.0015)

Uncommon 0.0008

(0.0011)

Highcorr 0.0010

(0.0015)

Loads -0.0006

(0.0010)

High12b1 0.0187

(0.0133)

ln (Age) 0.0002 0.0002 0.0001 0.0003 0.0001 0.0001

(0.0004) (0.0004) (0.0004) (0.0004) (0.0004) (0.0006)

ln (FundSize) -0.0002 -0.0002 -0.0001 -0.0003 -0.0002 -0.0005*

(0.0002) (0.0002) (0.0002) (0.0002) (0.0002) (0.0003)

Expense -0.0715** -0.0935** -0.0801* -0.0662** -0.0593 -0.1693

(0.0355) (0.0347) (0.0431) (0.0328) (0.0500) (0.1444)

Stdret 0.0806 0.0639 0.0534 0.0677 0.0549 -0.1019

(0.0609) (0.0481) (0.0504) (0.0474) (0.0482) (0.1789)

Obj flow 0.1559 0.2419 0.0656 0.0455 0.1393 -0.0588

(0.3020) (0.3205) (0.3258) (0.2823) (0.2973) (0.2207)

Constant -0.0060* -0.0004 -0.0071** -0.0071* -0.0054* -0.0071

(0.0031) (0.0032) (0.0035) (0.0038) (0.0030) (0.0060)

R-squared 0.337 0.307 0.387 0.370 0.363 0.453

Past Flows Yes Yes Yes Yes Yes Yes

13

Table IA.VII. Portfolios Formed Based on Past Performance in Both Funds: For Each Tercile

We present the full matrix of the conditional double sort results presented in Panel A, Table VIII. Panel A, B

and C shows the results within Tercile 1, 2, and 3, respectively. We use Newey-West standard errors with 3

lags; t-statistics are presented in parenthesis. *, **, and *** denote 10%, 5%, and 1% significance, respectively.

Holding Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) -0.0019 (-0.93) -0.0034* (-1.79) -0.0035** (-2.09) -0.0024 (-1.59)

2 -0.0025* (-1.84) -0.0026** (-2.22) -0.0026** (-2.30) -0.0017 (-1.59)

3 -0.0012 (-0.74) -0.0021** (-2.22) -0.0020** (-2.48) -0.0019*** (-2.60)

4 -0.0021 (-1.52) -0.0024 (-2.39) -0.0023*** (-3.00) -0.0021*** (-2.61)

5 (Highest) 0.0014 (0.83) 0.0022 (1.57) 0.0014 (1.21) -0.0001 (-0.05)

5-1 0.0033 (1.49) 0.0056*** (2.83) 0.0049*** (2.88) 0.0023 (1.59)

Panel B. Tercile 2

Holding Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) -0.0036** (-2.39) -0.0019 (-1.46) -0.0011 (-0.89) -0.0008 (-0.76)

2 -0.0017* (-1.92) -0.0014** (-2.32) -0.0012** (-2.17) -0.0012** (-2.09)

3 -0.0008 (-1.02) -0.0006 (-0.87) -0.0009 (-1.46) -0.0010* (-1.65)

4 -0.0009 (-0.88) -0.0010 (-1.29) -0.0004 (-0.51) -0.0008 (-1.29)

5 (Highest) -0.0006 (-0.57) -0.0010 (-1.34) -0.0011 (-1.35) -0.0010 (-1.31)

5-1 0.0030* (1.78) 0.0008 (0.00) 0.0001 (-0.02) -0.0002 (-0.31)

Holding Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) 0.0022 (1.28) 0.0023 (1.60) 0.0019 (1.38) 0.0017 (1.58)

2 -0.0001 (0.19) 0.0003 (0.03) 0.0004 (0.16) 0.0001 (-0.10)

3 0.0007 (0.10) 0.0003 (-0.06) 0.0003 (0.14) 0.0006 (0.24)

4 -0.0010 (-0.41) 0.0010 (0.62) -0.0001 (-0.02) 0.0001 (-0.03)

5 (Highest) 0.0043** (2.07) 0.0026 (1.61) 0.0022 (1.13) 0.0012 (0.57)

5-1 0.0020 (0.72) 0.0005 (0.10) 0.0003 (-0.11) -0.0005 (-0.72)

14

Table IA.VIII. Main Results using Placebo Sample 2 (Conditioning on Same Family)

This table presents the results from the flow-performance regressions using a placebo sample where we

replace one of the manager’s funds (F2) with another fund that is in the same fund family and with similar

characteristics. The dependent variable is Flow. In column (2), we use a piecewise linear specification. For

each month, we rank each fund based on their alphas and assign a fractional rank from 0 (worst) to 1 (best).

Then, we define: Low Alpha = Min(Rank , 0.2), Mid Alpha = Min(0.6, Rank – Low Alpha ), and High Alpha

= Rank – Mid Alpha – Low Alpha . We present results using ordinary least squares with errors clustered at

the manager level. All other variables are defined in Table XIII. *, **, and *** denote 10%, 5%, and 1%

significance, respectively.

Alpha 0.4404***

(0.0738)

Alpha2 -0.0768

(0.0620)

Low Alpha 0.0102

(0.0093)

Mid Alpha 0.0084***

(0.0023)

High Alpha 0.0297**

(0.0147)

Low Alpha2 0.0027

(0.0109)

Mid Alpha2 -0.0021

(0.0022)

High Alpha2 -0.0060

(0.0097)

ln (Age) -0.0000 0.0000

(0.0008) (0.0008)

ln (FundSize) 0.0002 0.0002

(0.0004) (0.0004)

Expense 0.0166 0.0176

(0.0793) (0.0783)

Stdret -0.0350 -0.0379

(0.0257) (0.0275)

Obj Flow 0.4414*** 0.4471***

(0.1240) (0.1256)

Constant -0.0016 -0.0085

(0.0058) (0.0060)

R-squared 0.357 0.357

Past Flows Yes Yes

Manager FE No No

Year-Month FE Yes Yes

15

Panel B. Conditional Double Sorts: Using Placebo Sample 2 (Conditioning on Same Family)

We present the conditional double sort results presented in Table VIII using a placebo sample where we

replace one of the manager’s funds (F2) with another fund that is in the same fund family and with similar

characteristics. We use Newey-West standard errors with 3 lags; t-statistics are presented in parenthesis. *, **,

and *** denote 10%, 5%, and 1% significance, respectively.

Holding

Period 1-month 3-month 6-month 12-month

Quintiles Alpha t-stat Alpha t-stat Alpha t-stat Alpha t-stat

1 (Lowest) -0.0001 (-0.06) -0.0004 (-0.28) -0.0012 (-0.93) -0.0001 (-0.09)

2 -0.0018 (-1.40) 0.0004 (0.40) -0.0001 (-0.09) 0.0001 (-0.05)

3 -0.0002 (-0.09) -0.0008 (-0.57) 0.0003 (0.25) 0.0006 (0.61)

4 -0.0002 (-0.11) -0.0001 (-0.08) 0.0001 (-0.01) 0.0001 (0.12)

5 (Highest) 0.0020 (1.04) 0.0016 (1.19) 0.0014 (1.08) 0.0020 (1.58)

5-1 0.0021 (0.78) 0.0020 (1.30) 0.0025 (1.32) 0.0022 (1.49)

16

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