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Better than Expected: The Hidden Dynamic of Variable Annuity Funds

Author

Listed:
  • Massimo Massa
  • Vijay Yadav

Abstract

We study how variable annuity affiliation affects fund performance. We find that VA-affiliated funds outperform pure open-end funds by about 70 basis points four-factor alpha per year in case of actively managed US equity funds. We argue that affiliation with a variable annuity wrapper increases the ability of investors to compare performance of funds offered within the same wrapper. This increases the competitive pressure among fund families. We explain the superior performance of VA-affiliated funds in terms of self-selection: only the better funds are chosen by fund families to be part of insurance wrappers.

Suggested Citation

  • Massimo Massa & Vijay Yadav, 2016. "Better than Expected: The Hidden Dynamic of Variable Annuity Funds," Review of Finance, European Finance Association, vol. 20(6), pages 2273-2320.
    • Handle: RePEc:oup:revfin:v:20:y:2016:i:6:p:2273-2320.
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    File URL: http://hdl.handle.net/10.1093/rof/rfv066
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    Cited by:

    1. Eaton, Gregory W. & Irvine, Paul J. & Liu, Tingting, 2021. "Measuring institutional trading costs and the implications for finance research: The case of tick size reductions," Journal of Financial Economics, Elsevier, vol. 139(3), pages 832-851.

    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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