Managerial Structure and Performance-Induced Trading
51 Pages Posted: 5 Jun 2017 Last revised: 10 Feb 2023
Date Written: July 14, 2024
Abstract
We propose a new channel through which teamwork improves mutual fund activity: by offsetting individual manager overconfidence, teams mitigate excessive performance-induced trading. The predictions of our theoretical mechanism are confirmed in the data. Team-managed funds trade less after good performance than single-managed funds, and this differential increases with team size. Changes from single to team management correspond to reductions in performance-induced trading. We rule out alternative explanations including differences in manager skill, experience, fund governance, gender, and fund flows. Overconfident trading by single-managed funds results in lower next-period returns compared to team-managed funds. Overall, team management reduces uninformed overconfident trading.
Keywords: Behavioral bias, Overconfidence, Teamwork, Excess turnover, Fund alpha, Portfolio optimization, Posterior beliefs
JEL Classification: D22, D70, G02, G23
Suggested Citation: Suggested Citation
Fedyk, Anastassia and Patel, Saurin and Sarkissian, Sergei, Managerial Structure and Performance-Induced Trading (July 14, 2024). Available at SSRN: https://ssrn.com/abstract=2978811 or http://dx.doi.org/10.2139/ssrn.2978811
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