Finance Professor, Blake Phillips, knows imitation is not always the sincerest form of flattery

Monday, October 20, 2014
by Patty Mah, Associate Director Admissions and Communications

Professor Blake PhillipsSchool of Accounting and Finance Assistant Finance Professor, Blake Phillips, along with Kuntara Pukthuanthong (Trulaske College of Business at the University of Missouri), and Professor Raghu Rau (Cambridge Judge Business School, University of Cambridge), recently discovered that copycat funds are only successful for a short period of time and require no real “skill” to produce effectively in the long run.

Copycat funds are a result of fund managers publishing their portfolio information publicly, and imitators reviewing this in search of the most successful funds. The professors write, “It appears that copycat funds use prior performance as a primary criterion when selecting a fund to copy, and this superior performance is sustained in the short term. However, they are unable to identify funds with persistent superior performance.”

As a result, the copycat fund tends to succeed for a short period of time before having typically smaller results than their targets.

“[...] copycat funds are typically distressed funds that appear to turn to mimicking behavior to reverse current performance and investor redemption trends.”

When looking to invest, this study shows that copycat funds are not always the best way to do it.

The full academic paper can be found here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2496452