Abstract

http://ssrn.com/abstract=2024370
 
 

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Allocation of Decision Rights and the Investment Strategy of Mutual Funds


Nishant Dass


Georgia Institute of Technology

Vikram K. Nanda


Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Qinghai Wang


Georgia Institute of Technology - Scheller College of Business

March 15, 2012


Abstract:     
The literature suggests that while decentralized decision-making can allow for greater specialization in an organization, it heightens the cost of coordinating decisions. The mutual fund industry – in particular, sole- and team-managed balanced funds – provides an ideal setting to test the specialization vs. coordination trade-off, since information on decision structures and fund actions is easily obtained. We document that sole-managed balanced funds, with centralized decision rights, exhibit significant market timing that requires reallocation across asset classes. However, consistent with coordination difficulties between managers specializing in particular asset classes, there is no market-timing evident in team-managed balanced funds. Team-managed funds exhibit greater returns from specialization, in the form of better security-selection performance than sole-managed funds. These results hold cross-sectionally and for funds that switch management structures. The overall returns across different management structures are similar, indicating a market equilibrium. Investor flows reward market-timing performance for sole- but not team-managed funds.

Number of Pages in PDF File: 46

Keywords: teams, coordination costs, decision rights, performance, mutual funds

JEL Classification: G20, G23, D70

working papers series





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Date posted: March 19, 2012  

Suggested Citation

Dass, Nishant and Nanda, Vikram K. and Wang, Qinghai, Allocation of Decision Rights and the Investment Strategy of Mutual Funds (March 15, 2012). Available at SSRN: http://ssrn.com/abstract=2024370 or http://dx.doi.org/10.2139/ssrn.2024370

Contact Information

Nishant Dass (Contact Author)
Georgia Institute of Technology ( email )
800 West Peachtree St NW
College of Management, Georgia Tech
Atlanta, GA 30308
United States
404-894-5109 (Phone)
HOME PAGE: http://mgt.gatech.edu/dass
Vikram K. Nanda
Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )
Janice H. Levin Bldg., Room 121
94 Rockafeller Road
Piscataway, NJ 08854-8054
United States
Qinghai Wang
Georgia Institute of Technology - Scheller College of Business ( email )
800 West Peachtree St.
Atlanta, GA 30308
United States
+1-404-385-3266 (Phone)
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