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Following the stars: an empirical study of star turnover and subsequent performance
Dissertation   Open access

Following the stars: an empirical study of star turnover and subsequent performance

Thomas E. Miller
Doctor of Business Administration (D.B.A.), Drexel University
Mar 2021
DOI:
https://doi.org/10.17918/00000557
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Abstract

Mutual funds--Management Industrial management
Many people invest in mutual funds that are managed professionally. Some of these managers emerge as stars who excel at enhancing the funds' performance. What happens to the performance of these funds if these star managers leave them? How do the specific characteristics of a departing star portfolio manager influence that fund's future performance? Can the stars perform as well when they manage their new fund at their next employer? These are the questions that we set out to answer in this paper. Based on a comprehensive study of star mutual fund portfolio managers across all asset classes from 1985 - 2019, we made a number of interesting findings. While we did not find that a star portfolio manager's departure had any significance for the funds' future performance, we did determine that stars manage their funds with less risk at their new employer, especially if they have ownership in that new firm. We also found that there are a number of variables that are significant in predicting a fund's future performance that have practical importance and application. For example, a firm's age, the fund's age, and how many portfolios a star portfolio manager is responsible for all have implications. Our findings support and add to agency theory by validating it using a large empirical dataset. We also extend the research on human capital theory and the knowledge-based view of the firm.

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