Network Centrality and Delegated Investment Performance

55 Pages Posted: 7 Mar 2016 Last revised: 2 Oct 2016

See all articles by Alberto Rossi

Alberto Rossi

University of Maryland - Department of Finance

David P. Blake

City University London - Cass Business School

Allan Timmermann

UCSD ; Centre for Economic Policy Research (CEPR)

Ian Tonks

University of Bristol

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Date Written: December 20, 2015

Abstract

We document a positive relation between network centrality and risk-adjusted performance in a delegated investment management setting. More connected managers take more portfolio risk and receive higher investor flows, consistent with these managers improving their ability to exploit investment opportunities through their network connections. Greater network connections are shown to be particularly important in reducing the diseconomies-of-scale for large managers who are well-connected. We also use the exogenous merger of two investment consultants, which creates a sudden change in the network connections of the managers they oversee, to provide evidence that a greater number of connections translates into better portfolio performance.

Keywords: Networks, Investment Management, Performance

JEL Classification: G10, G20, G23,

Suggested Citation

Rossi, Alberto and Blake, David P. and Timmermann, Allan and Tonks, Ian and Wermers, Russell R., Network Centrality and Delegated Investment Performance (December 20, 2015). Netspar Discussion Paper No. 12/2015-065. Available at SSRN: https://ssrn.com/abstract=2743187 or http://dx.doi.org/10.2139/ssrn.2743187

Alberto Rossi (Contact Author)

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

David P. Blake

City University London - Cass Business School ( email )

London, EC2Y 8HB
Great Britain
+44 (0) 20-7040-5143 (Phone)
+44 (0) 20-7040-8881 (Fax)

Allan Timmermann

UCSD ( email )

9500 Gilman Drive
La Jolla, CA 92093-0553
United States
858-534-0894 (Phone)

HOME PAGE: http://rady.ucsd.edu/people/faculty/timmermann/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ian Tonks

University of Bristol ( email )

Department of Finance and Accounting
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

Russell R. Wermers

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

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