Managerial Ownership Changes and Mutual Fund Performance

27 Pages Posted: 12 Aug 2015 Last revised: 14 Sep 2015

See all articles by Thorsten Martin

Thorsten Martin

Bocconi University; IGIER - Innocenzo Gasparini Institute for Economic Research

Florian Sonnenburg

University of Cologne - Centre for Financial Research (CFR)

Date Written: August 11, 2015

Abstract

We study the dynamics of fund manager ownership for a sample of U.S. equity mutual funds from 2005 to 2011. We find that ownership changes positively predict changes in future risk-adjusted fund performance. A one-standard-deviation increase in ownership predicts a 1.6 percent increase in alpha in the following year. Fund managers who are required to increase their ownership by fund family policy show the strongest increase in alpha. They do so by increasing their trading activity in line with the view that higher ownership aligns interests of managers with those of shareholders and induces higher effort.

Keywords: Mutual Funds, Fund Manager Ownership Changes, Fund Performance Predictability, Incentive Alignment, Superior Information

JEL Classification: G11, G14, G20, G23

Suggested Citation

Martin, Thorsten and Sonnenburg, Florian, Managerial Ownership Changes and Mutual Fund Performance (August 11, 2015). HEC Paris Research Paper No. FIN-2015-1102, Available at SSRN: https://ssrn.com/abstract=2642255 or http://dx.doi.org/10.2139/ssrn.2642255

Thorsten Martin

Bocconi University ( email )

Via Roentgen 1
Milan, 20136
Italy

HOME PAGE: http://https://sites.google.com/view/thorstenmartin

IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Florian Sonnenburg (Contact Author)

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

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