Managerial Ability, Risk Preferences and the Incentives for Active Management

38 Pages Posted: 12 Mar 2016 Last revised: 10 Jun 2016

See all articles by Ramiro Losada

Ramiro Losada

Comision Nacional del Mercado de Valores

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Date Written: March 10, 2016

Abstract

This paper uses a structural econometric model to assess the managerial ability of Spanish management companies. Traditionally, ability has been mainly measured by the alphas of CAPM models. The model used in this paper allows to disentangle the ability and preferences that are embedded in alphas. The results show that the abilities of Spanish management companies are lower than their peers in the US. This result could be the consequence of the limited competition in the mutual fund market as well as the narrowness of the equity markets that the funds invest in. Moreover, it is shown that the fraction of the funds' portfolios that is actively managed does not depend on the fees paid and it is negatively correlated to funds' total assets and whether a fund belongs to a credit institution's management company.

Keywords: Ability, incentives, active management

JEL Classification: G11, G23, C58

Suggested Citation

Losada, Ramiro, Managerial Ability, Risk Preferences and the Incentives for Active Management (March 10, 2016). Available at SSRN: https://ssrn.com/abstract=2745891 or http://dx.doi.org/10.2139/ssrn.2745891

Ramiro Losada (Contact Author)

Comision Nacional del Mercado de Valores ( email )

c/edison 4
Madrid, Madrid 28006
Spain

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