Ran Xing, assistant professor at the Finance section, Stockholm Business School.

Funds specialize in identifying investment opportunities at different investment horizons. High-turnover funds profit substantially from their new holdings in the first two weeks, with more than 80% of the profits earned on earnings announcement days and Federal Open Market Committee (FOMC) meeting days. Moreover, high-turnover investment strategies benefit fund managers by accelerating the revelation of fund managers’ skill since managers can always choose to exit if things do not go well. As a result, a large number of new and unskilled managers invest in high-turnover strategies to boost their career potential, driving down returns of short-term investment opportunities. A small number of experienced and skilled managers exploit scalable long-term investment opportunities, making substantial profits.

I feel encouraging when getting this award, and I plan to spend this money on travelling for conferences and buying new datasets says Ran.

Read more about Ran Xing

The research is presented in two projects:

A Horizon Based Decomposition of Mutual Fund Value Added using Transactions  
(with Jules van Binsbergen, Jungsuk Han, and Hongxun Ruan)

Journal of Finance, forthcoming

Abstract: We decompose mutual fund value added by the length of funds' holdings using transaction-level data.  We motivate our decomposition with a model featuring horizon-specific investment ideas, where short-term ideas are less scalable because the associated trades cannot be spread over time. Fund turnover correlates negatively with the horizon over which value is added and positively with price impact costs. As predicted, holdings of high-turnover funds add a substantial amount of value in the first two weeks, of which more than 80% is earned on FOMC and earnings announcement days. Holdings of low-turnover funds add value only over longer horizons.

Mutual Fund Managers’ Career Concerns, Investment Horizons, and Value Added: Theory and Empirics
(with Jules van Binsbergen, Jungsuk Han, and Hongxun Ruan)

Abstract: We study a dynamic equilibrium model of mutual fund investing under career concerns that features investment opportunities at different horizons. Equilibrium returns are endogenously determined by competition. Short-term investment strategies can benefit fund managers by accelerating skill revelation, while the downside risk is managed by manager exit. In the steady state, a large number of new and unskilled managers exploit the value of this call option, driving down short-term excess returns. A small number of experienced and skilled managers exploit scalable long-term investment opportunities, adding substantial value. We empirically confirm our theoretical predictions using US mutual fund data.