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Is It Who You Know or What You Know? Evidence from IPO Allocations and Mutual Fund Performance

Published online by Cambridge University Press:  19 October 2018

Chuan-Yang Hwang ,
Sheridan Titman  and
Yuxi Wang
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Abstract

Mutual fund managers with degrees from elite universities tend to outperform their counterparts from less elite universities. We show that the better performance of elite graduates is generated from their better connections with underwriters that facilitate allocations to underpriced initial public offerings (IPOs). Indeed, we find that the funds outperform only in months when they are connected to underwriters issuing IPOs. A strategy of buying mutual funds in months when they are connected to underwriters scheduled to issue IPOs generates significant abnormal returns, as high as 4.08% per annum in hot markets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 6 , December 2018 , pp. 2491 - 2523
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank an anonymous referee, Utpal Bhattacharya, Zhanhui Chen, Lauren Cohen, Jennifer Conrad (the editor), Stephen Dimmock, Paul Gao, Bing Han, David Hirshleifer, Qian Qian Huang, Pedro Matos, Vikram Nanda, Christopher Parsons, Yiming Qian, Jay Ritter, Chishen Wei, Adam Winegar, Hong Yan, Xiaoyun Yu, Lu Zheng, conference participants at the 2016 American Finance Association (AFA) Meeting and the 2015 China International Conference in Finance (CICF), and seminar participants at Curtin University, Shanghai Advanced Institute of Finance, Murdoch University, Nanyang Technological University, the National University of Singapore, National Chengchi University, National Taiwan University, the University of Calgary and the University of Texas at Austin for helpful comments. The paper was also presented at Fidelity and benefitted from discussions with the portfolio managers who were allocated IPOs during our sample period. Titman serves as an advisor to Gerstein Fisher, an investment advisor and asset manager, and benefitted from discussions with Gregg Fisher and Ronnie Shah about their mutual funds. Special thanks to Stephen Dimmock and Zheng Qiao for their generous help with the data. All errors are our own.

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