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Learning by Doing: The Value of Experience and the Origins of Skill for Mutual Fund Managers

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Abstract

Learning by doing matters for professional investors. We develop a new methodology to show that mutual fund managers outperform by a risk-adjusted 1.5% per quarter in industries where they have experience. The key to our identification strategy is that we look "inside" funds and exploit heterogeneity in experience for the same manager at a given point in time across industries. As fund managers become more experienced, their trades become better predictors for abnormal stock returns around subsequent earnings announcements. Our approach identifies experience as a first-order driver of observed mutual fund manager skill.

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... TAP briefings or sessions addressing VA benefits, employment, and resilient transitions, which compose major portions of this program, continue to be provided using mostly outdated didactic teaching approaches that rely heavily on Microsoft PowerPoint presentations. These briefings rarely employ more current learning approaches such as experiential learning techniques, computer-assisted instruction, or simulation-based instruction which have been found to improve student participation, retention, and application of course material (Fletcher, 2009;Kempf, Manconi, & Spalt, 2017;Menaker, Coleman, Collins, & Murawski, 2005;Reime, et al., 2017). ...
... Training is provided using experiential, computer-assisted, and simulation-based instruction techniques which challenge participants to learn, practice, and apply valuable information needed for their post-military lives. (Fletcher, 2009;Kempf et al., 2017;Menaker et al., 2005;Reime et al., 2017) These learning approaches which require the learner to interact, manipulate, and sometimes modify the course learning material to solve problems or address needs, have been found to effectively foster information retention by participants participant information retention in military, business, medical, and social service educational programs (Fletcher, 2009;Kempf et al., 2017;Menaker et al., 2005;Reime et al., 2017). ...
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Thesis
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... 5 In fact, they show scale effects and heterogeneity in risk preferences cannot explain the whole cross section of returns across households. Moreover, they find the individual fixed effects (after controlling for the observed risk-taking behavior), interpreted as sophistication, substantially increases the explanatory power 6 Further on the role of experience, Kempf, Manconi, and Spalt (2017) show fund managers' performance in a sector increases with his or her investment experience in that sector. ...
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