Managerial Structure and Performance-Induced Trading

2020 AFA San Diego Meetings Paper

56 Pages Posted: 5 Jun 2017 Last revised: 10 Feb 2023

See all articles by Anastassia Fedyk

Anastassia Fedyk

University of California, Berkeley - Haas School of Business

Saurin Patel

Ivey Business School, Western University

Sergei Sarkissian

McGill University; University of Edinburgh

Date Written: January 29, 2023

Abstract

We propose a new channel through which teamwork improves mutual fund activity: by offsetting individual manager overconfidence, teams mitigate excessive performance-induced trading (PIT). 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. Moreover, changes from single to team management correspond to reductions in PIT. We rule out a number of alternative explanations, including differences in manager skill, manager experience, fund governance, gender, and fund flows. Overconfident trading by single-managed funds results in lower next-period returns compared to team-managed funds. Our findings indicate that team management reduces uninformed overconfident trading.

Keywords: Behavioral bias, Excess turnover, Fund alpha, Portfolio optimization, Posterior belief

JEL Classification: D22, D70, G02, G23

Suggested Citation

Fedyk, Anastassia and Patel, Saurin and Sarkissian, Sergei, Managerial Structure and Performance-Induced Trading (January 29, 2023). 2020 AFA San Diego Meetings Paper, Available at SSRN: https://ssrn.com/abstract=2978811 or http://dx.doi.org/10.2139/ssrn.2978811

Anastassia Fedyk

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Saurin Patel (Contact Author)

Ivey Business School, Western University ( email )

1255 Western Road
Room 2303
London, Ontario N6G 0N1
Canada
519-661-4195 (Phone)

Sergei Sarkissian

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
514-398-4876 (Phone)
514-398-3876 (Fax)

HOME PAGE: http://sergei-sarkissian.com

University of Edinburgh

29 Buccleuch Pl.
Edinburgh, Scotland EH8 9JS
United Kingdom

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