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Does Past Performance Matter in Investment Manager Selection?

Cornell, Bradford and Hsu, Jason and Nanigian, David (2017) Does Past Performance Matter in Investment Manager Selection? Journal of Portfolio Management, 43 (4). pp. 33-43. ISSN 0095-4918. doi:10.3905/jpm.2017.43.4.033.

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The authors empirically investigate the investment impact of commonly used manager selection heuristics that involve redeploying assets from underperforming to outperforming managers. Studying portfolios constructed using the typical three-year evaluation periods employed by most pension funds, the authors find that investors who chose managers with poor recent performance earned higher benchmark-adjusted returns than those who chose managers with superior recent performance. Their findings pose a challenge for asset owners: If past performance is used at all in selecting managers, it is the best-performing managers who should be replaced, not the underperforming ones. Realistically, however, a policy of replacing successful managers with poor performers is unlikely to gain widespread acceptance. Instead, the practical implication of this article is that asset owners should focus on factors other than past performance. The authors offer alternate criteria for selecting managers.

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Additional Information:© 2017 Institutional Investor, LLC. Published online July 31, 2017.
Issue or Number:4
Record Number:CaltechAUTHORS:20180321-095702727
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Official Citation:Does Past Performance Matter in Investment Manager Selection? Bradford Cornell, Jason Hsu, David Nanigian. The Journal of Portfolio Management Jul 2017, 43 (4) 33-43; DOI: 10.3905/jpm.2017.43.4.033
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:85393
Deposited By: Tony Diaz
Deposited On:26 Mar 2018 21:56
Last Modified:15 Nov 2021 20:28

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