Oct 27, 2013

What a Difference a Ph.D. Makes

In this paper, we analyze the relation between investment performance of domestic equity products managed by institutional money manager and a broad spectrum of managers’ demonstrated academic ability. We focus on possession of a Ph.D. degree, as well as managers’ publication records in top outlets in economics and finance). Using gross returns (returns measured gross of fees, but net of transaction costs), we find that the performance of investment products managed by Ph.D.s is superior to the performance of non-Ph.D. products along several metrics widely employed to measure risk-adjusted product performance (objective-adjusted returns, Sharpe ratio, four-factor alpha, information ratio, and manipulation-proof performance measure). The performance differential in gross returns is preserved, even slightly enhanced, once fees are taken into account (fees for Ph.D. products tend to be slightly lower than fees for non-Ph.D. products) (p. 25).

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