Managerial Structure and Performance-Induced Trading

54 Pages Posted: 5 Jun 2017  

Anastassia Fedyk

Harvard University, Harvard Business School

Saurin Patel

Ivey Business School, Western University

Sergei Sarkissian

McGill University; Yerevan State University

Date Written: June 1, 2017

Abstract

The literature finds that investors increase portfolio turnover following high returns, explaining it by either overconfidence or skilled trading. This paper develops a theoretical model and shows empirically that team-managed funds trade less after good performance than single-managed funds. The magnitude of this differential increases with team size. Moreover, the change from single- to team-management structure decreases overconfidence induced trading. In spite of more trading, the next-period risk-adjusted returns of single-managed funds are no better than those of team-managed funds. These findings indicate that team-management reduces overconfident trading. Alternative channels cannot explain the drop in excessive trading in team-managed funds.

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 (June 1, 2017). Available at SSRN: https://ssrn.com/abstract=2978811

Anastassia Fedyk

Harvard University, Harvard Business School ( email )

Cambridge, MA
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)

Yerevan State University

1 Alex Manoogian Street
Yerevan, 0025
Armenia

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