Chasing Performance, Institutional Style
It has been an well-known for a long time that many individual investors have a tendency to sabotage their returns by chasing after market leaders, hot-performing mutual funds, stocks, etc., and abandoning laggard investments in favor of newer hot performers. Using this technique, these individuals buy high and sell low.
Well it turns out that a lot of pension plan sponsors are doing a similar thing - losing worker pension money by chasing after hot-performing managers and firing current managers.
Amit Goyal and Sunil Wahal looked at nearly 10,000 hiring decisions by about 4,000 plan sponsors, and published their results in the paper "The Selection and Termination of Investment Management Firms by Plan Sponsors." The authors note, "Using a matched sample of firing and hiring decisions, we find that if plan sponsors had stayed with fired investment managers, their excess returns would be larger than those actually delivered by newly hired managers. "