Got skin in the game? Investor reaction to managers’ signaling of private investments in mutual funds

35 Pages Posted: 4 Jan 2023

See all articles by Dominik Scheld

Dominik Scheld

University of Marburg | Behavioral Finance Research Group

Oscar Anselm Stolper

University of Marburg | Behavioral Finance Research Group

Date Written: August 14, 2022

Abstract

—“Skin in the game”—money managers’ private investments in the funds they run—helps aligning potentially conflicted interests of investors and managers. Prior research acknowledges this benefit but remains silent about how investors are supposed to learn if fund managers have skin in the game. We fill this gap by investigating strategic signaling of aligned incentives explicitly addressed to the investor in the shareholder letter. Analyzing ~16,000 shareholder letters of U.S. mutual funds, we first show that fund managers’ disclosure of private investment leads to excess fund inflows up to two weeks after the letter is sent out. Second, outflows are significantly less pronounced following poor performance. Third, the impact of skin in the game communication on fund flows limits to retail shareholders. Our research informs the debate on how to design effective governance for mutual funds.

Keywords: Mutual funds, fund flows, textual analysis, fund manager ownership, shareholder letter, skin in the game

JEL Classification: G11, G23, G29, G32

Suggested Citation

Scheld, Dominik and Stolper, Oscar Anselm, Got skin in the game? Investor reaction to managers’ signaling of private investments in mutual funds (August 14, 2022). Available at SSRN: https://ssrn.com/abstract=4302367 or http://dx.doi.org/10.2139/ssrn.4302367

Dominik Scheld (Contact Author)

University of Marburg | Behavioral Finance Research Group ( email )

Am Plan 1
Marburg, 35032
Germany

Oscar Anselm Stolper

University of Marburg | Behavioral Finance Research Group ( email )

Am Plan 1
Marburg, 35032
Germany

HOME PAGE: http://https://www.uni-marburg.de/de/fb02/professuren/bwl/behavioralfinance

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