Screening Discrimination in Financial Markets: Evidence from CEO-Fund Manager Dyads

62 Pages Posted: 13 Jun 2017 Last revised: 6 Nov 2020

See all articles by Stefan Jaspersen

Stefan Jaspersen

University of Cologne - Centre for Financial Research (CFR); University of Cologne - Department of Finance

Peter Limbach

University of Cologne and Centre for Financial Research (CFR)

Date Written: November 4, 2020

Abstract

We find that demographic similarity to CEOs facilitates informed trading after accounting for networks and selective information distribution. Fund managers overweight firms whose CEOs resemble them in terms of age, ethnicity, and gender. Significantly higher trade performance and lower crash risk in the sub-portfolio of similar CEOs indicates that overweighting reflects informational advantage. Consistently, for similar CEOs, fund managers can better identify valuable CEO-firm matches, high-integrity CEOs, and firms with positive earnings announcement returns. The evidence supports theories of screening discrimination according to which in-group bias is a rational response to asymmetric information and has implications for fund manager diversity.

Keywords: CEO-investor demographic similarity, fund manager diversity, in-group bias, informational advantage, investment decisions, mutual fund performance, screening discrimination

JEL Classification: G11, G23, J10

Suggested Citation

Jaspersen, Stefan and Limbach, Peter, Screening Discrimination in Financial Markets: Evidence from CEO-Fund Manager Dyads (November 4, 2020). Available at SSRN: https://ssrn.com/abstract=2984287 or http://dx.doi.org/10.2139/ssrn.2984287

Stefan Jaspersen

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

University of Cologne - Department of Finance ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Peter Limbach (Contact Author)

University of Cologne and Centre for Financial Research (CFR) ( email )

Albertus-Magnus-Platz
Köln, 50923
Germany

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