PhD seminar with Felix Wilke

Title: Expectations of Active Mutual Fund Performance

Abstract: We recover a forward-looking distribution of expected abnormal returns (alphas) for active equity mutual funds from analyst ratings and confront analysts’ expectations with expectations from a rational expectations learning model. Analysts and the rational learner respond similarly to changes in perceived skill and fees, but analysts do not believe in a negative impact of fund size on fund returns. The absence of such decreasing returns to scale in analysts' expectations and the presence thereof in actual fund returns make it difficult to reconcile analysts' expectations with rational expectations, but can help explain the industry's size and its poor performance.