Does human capital efficiency matter for performance during COVID-19 outbreak

What is it about?

Despite its relevance for financial services, the impact of human capital efficiency on mutual fund performance has remained unexplored. In this paper, we attempt to explore this gap in the context of the outbreak of COVID-19 that provides us a unique opportunity to assess human capital's importance during economic pressures. We employ data on 2044 equity funds across sixteen COVID-19 affected Asian countries to analyze the performance, market, and volatility timing after sorting these funds as per their human capital efficiency. Our results show that funds with better human capital efficiency outperform their counterparts that rank lower on human capital efficiency. The outperformance as measured by adjusted Sharpe and Sortino’s ratios, Jensen’s alpha, stochastic dominance, market, and volatility timing remained consistent for the pre-COVID period as well as through the outbreak during which the impact of human capital efficiency became even more significant. These findings have important strategic implications for mutual funds.

Featured Image

Why is it important?

We show that the mutual funds with higher human capital efficiency (HCE) are achieving through perpetual investments better than their peers. Given that no prior study has linked HCE with mutual funds' performance, we identify this as a valid research gap.

Perspectives