Jonathan B. Berk, the A.P. Giannini Professor of Finance, is co-author of Mutual Fund Flows and Performance in Rational Markets, published in the Journal of Political Economy in 2004. He and his co-author, the late Professor Richard Green of Carnegie Mellon University, were celebrated at a recent conference of the Foundation for the Advancement of Research in Financial Economics, or FARFE.
The prize committee named this paper the winner of the Stephen A. Ross Prize in Financial Economics because of its important contribution to the understanding of the equilibrium behavior of mutual fund returns and mutual fund flows. The paper led to a reframing of questions asked in mutual fund studies. It demonstrated three key points regarding efficient markets for mutual funds: Actively managed funds do not outperform passive benchmarks, investors reallocate their money to the better-performing funds, and there is no persistence in mutual fund returns.
The prize, which comes with a $100,000 purse, is conferred by FARFE to support research in financial economics and facilitate productive interaction between research and practice in finance. First awarded in 2008, the prize is named in honor of the late MIT financial economist Stephen A. Ross, who passed away in March 2017.