Youâ€™re Fired! New Evidence on Portfolio Manager Turnover and Performance
Leonard Kostovetsky and
Jerold B. Warner
Journal of Financial and Quantitative Analysis, 2015, vol. 50, issue 4, 729-755
We study managerial turnover for both internally managed mutual funds and those managed externally by subadvisors. We argue that turnover of subadvisors provides sharper tests and helps address several unresolved issues and puzzles from the previous literature. We find dramatically stronger inverse relations between subadvisor departures and lagged returns, and new evidence on how past flow predicts turnover. We find no evidence of improvements in return performance related to departures, but flow improvements are associated with departures of poor past performers. Our findings represent new evidence on how investors, sponsors, and boards learn about and evaluate mutual fund management performance.
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