Quant Jocks and Tire Kickers
I just love the title of this paper…
A job market paper for a PhD student (Jane Zhao) who was on the market a few years ago.
Quant Jocks and Tire Kickers: Does the Stock Selection Process Matter?
This paper classiﬁes mutual funds into two groups according to their distinctive stock selection approaches: tire kickers who rely on fund managers’ personal judgment and fundamental analysis to pick stocks, and quant jocks who use computer-based models to select stocks. I examine how the stock selection approach aﬀects mutual fund performance and economies of scale. I document an increasing trend of quantitative techniques used by mutual funds, and some unique characteristics of quant jocks. Quant jocks and tire kickers have similar factor-adjusted alphas, but quant jocks have higher Sharpe ratios. Quant jocks tend to be much smaller than tire kickers. I explore possible explanations for the size diﬀerence. I ﬁnd that although quant jocks can cheaply screen a large universe of stocks, the stocks that quant jocks invest in are smaller and less liquid, which results in higher transaction costs and limited scalability of quantitative investment strategies.
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