Managerial Structure and Performance-Induced Trading

53 Pages Posted: 5 Jun 2017 Last revised: 19 May 2018

Anastassia Fedyk

Harvard University, Harvard Business School

Saurin Patel

University of Western Ontario - Finance-Economics Area Group

Sergei Sarkissian

McGill University; Yerevan State University

Date Written: April 15, 2017

Abstract

We propose a new channel through which teamwork improves mutual fund activity: by offsetting individual overconfidence, teams mitigate excessive performance-induced trading. The predictions of our theoretical model are confirmed in the data. Team-managed funds trade less after good performance than single-managed funds, and the magnitude of this differential increases with team size. Moreover, changes from single-to team-management correspond to lower performance-induced trading. Our results cannot be explained by alternative explanations, including manager experience, gender, and fund flows. Heavy trading by singe-managed funds results in lower next-period returns compared to team-managed funds. Our findings indicate that team-management reduces 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 (April 15, 2017). Available at SSRN: https://ssrn.com/abstract=2978811 or http://dx.doi.org/10.2139/ssrn.2978811

Anastassia Fedyk

Harvard University, Harvard Business School ( email )

Cambridge, MA
United States

Saurin Patel (Contact Author)

University of Western Ontario - Finance-Economics Area Group ( 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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