Essays on Mutual Funds

This dissertation consists of two essays on mutual funds. The first essay, included in Chapter 1, is “Trump Tweeting Sentiment, Mutual Fund Portfolio, and Investor Preference”. I show that online social media affects how mutual fund managers construct their portfolios and how investors make decisions across funds. By analyzing the tweets of Donald J. Trump, the 45th president of the United States, I find that funds following Trump’s recommendations at industry level attract extra flows and generate superior performance. Significant effects are observed only during Trump’s presidency and only for positive sentiment tweets. I present evidence that investors’ political preference, their sophistication level, the fund manager’s age and the size of the fund management, all affect fund level response to Trump’s tweets. I also discover that Trump’s tweets have the most impact on politically-sensitive industries including guns, energies, and utilities. This study sheds light on how active fund managers utilize information from online social media for their portfolio decisions, and suggests that investment decisions are highly affected by investor’s characteristics. The second essay, included in Chapter 2, is “Rise from the Dead: An Empirical Analysis of Mutual Fund Manager Turnover, Demotion, and Rehiring”. Using comprehensive fund manager turnover data, I classify turnovers by the long-term past performance of their funds. Management structure and manager experience have significant impact on fund manager replacement, as single managers and rookie managers have less incentive to leave voluntarily, but they also face higher risk of dismissal when funds are underperforming. I also document a spillover effect across employments triggered by one employment dismissal. Finally, I find that performance and experience affects short-term rehiring, while manager age affects long-term rehiring. A rehired manager typically works for a smaller, less competitive fund, and for less pay.