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Is a Team Different From the Sum of Its Parts? Evidence From Mutual Fund Managers
Abstract
This paper provides the first empirical test of the diversification of opinions theory and the group shift theory using real business data. Our data set covers management teams and single managers of US equity mutual funds. Our results reject the group shift theory and support the diversification of opinions theory: teams follow less extreme investment styles, their portfolios are less industry concentrated, and they are eventually less likely to achieve extreme performance outcomes. These results hold after taking into account the impact of fund and family characteristics as well as manager characteristics. Copyright 2010, Oxford University Press.
... 1 However, in stark contrast to both theoretical and real-world evidence, empirical studies find little evidence of performance benefits of teamwork in the fund industry. For instance, Prather and Middleton (2002), Chen, Hong, Huang, and Kubik (2004), Bliss, Porter, and Schwarz (2008), Massa, Reuter, and Zitzewitz (2010), Bar, Kempf, and Ruenzi (2011), and others, using largely Center for Research in Security Prices (CRSP) or Morningstar Principia (MP) data, find that teams provide no overall gains over single-managed funds and even lead Table 1 reports for each relevant reference, the type of examined mutual funds, the data source, the sample period, and the resulting riskadjusted return difference between team-and single-managed funds. This outcome seems puzzling. ...
... Mutual Fund Types Source Period Diff (Team-Single) Chen, Hong, Huang, and Kubik (2004) U.S. diversified equity CRSP 1992-1999 Negative Bar, Kempf, and Ruenzi (2011) U.S. diversified equity CRSP 1994-2003 Negative Prather and Middleton (2002) U.S. diversified equity Pre-MP 1981-1994 No difference Bliss, Porter, and Schwarz (2008) All U.S. funds MP 1993MP -2003 No difference Massa, Reuter, and Zitzewitz (2010) U.S. diversified equity MP 1994 12-or 36-month return estimation windows. We consistently record the outperformance of team-managed funds across various fund investment objectives, especially outside the aggressive growth category. ...
... In these regressions, the coefficient estimate on TEAM is negative but not statistically significant. This result could explain the conclusions in many studies that use CRSP data and that find team management does not add any positive value for fund performance (see, e.g., Chen et al. (2004), Bar et al. (2011)). Columns 3 and 4 report the estimation results with MP data. ...
Despite the overwhelming trend in mutual funds toward team management, empirical studies find no performance benefits for this phenomenon. We show it is caused by large discrepancies in reported managerial structures in Center for Research in Security Prices and Morningstar Principia data sets versus U.S. Securities and Exchange Commission records, resulting in up to 50-basis-points underestimation of the team impact on fund returns. Using more accurate Morningstar Direct data, we find that team-managed funds outperform single-managed funds across various performance metrics. The relation between team size and fund performance is nonlinear. Also, team-managed funds take on no more risk than single-managed funds. Overall, team management benefits fund industry performance.
... For example, Adams and Ferreira (2010) nd that teams arrive to less extreme decisions. Sharpe (1981), Barry and Starks (1984), Sah and Stiglitz (1991), Bar, Kempf, and Ruenzi (2011) argue and nd that teams in the fund industry achieve diversication of style and judgment that reduces portfolio risk. ...
... Moreover, papers, such as Prather and Middleton (2002), Chen, Hong, Huang, and Kubik, (2004), Bliss, Porter, and Schwarz (2008), Massa, Reuter, and Zitzewitz (2010), and Bar, Kempf, and Ruenzi (2011) nd no performance dierences between team-managed and single-managed funds. Cici (2012) nds that when funds are managed by managerial teams, at the time of net out ows they are selling substantially more winners than losers. ...
... First, we add to the theoretical and empirical literature that highlights the positive eects of team production on decision-making. For example, studies show that team-based managerial structure helps overcome the problem of eort coordination through peer pressure (Kandel and Lazear, 1992); diminishes extreme and risky decisions through diversication of opinions (Adams and Ferreira, 2010;Sharpe, 1981;Barry and Starks, 1984;Bar, Kempf, and Ruenzi, 2011); improves productivity and performance (Hamilton, Nickerson, and Owan, 2003;Patel and Sarkissian, 2016). Second, we contribute to the mutual fund literature that shows the prevalence of various behavioral biases among fund managers. ...
... All effects are the stronger, the more power the manager has in the board." Baer, Kempf, and Ruenzi [2011] provide the first empirical tests of the "diversification of opinion theory" and the "group-shift theory" based on mutual fund single and team portfolio managers. The group shift theory suggests team manager opinions shift toward those of dominant managers and gravitate toward extreme decisions. ...
... The extremity of decision outcomes can be affected by organizational structures, such as teams. Baer, Kempf, and Ruenzi's [2011] summation is as follows: ...
... In more recent years, the use of team portfolio managers has become increasingly popular in the mutual fund industry. Baer, Kempf, and Ruenzi [2005] analyze team management along three dimensions: (1) determinants of fund management structure; (2) potential effects of fund management structure; and (3) consequences of team management on fund performance, performance persistence, and fund inf lows. ...
The purposes of this study are to review how mutual fund portfolio manager structures-and their attributes and implications-impact fund risk and return performance. For example, retail investors in actively managed mutual funds are often characterized as "dumb investors chasing past performance," but evidence finds the opposite is true. Investors are able to identify skilled portfolio managers, but the average investor's net alpha is significantly negative. There is thus no evidence that investors share in returns provided by manager skill. Again, why do investors who can identify skilled managers in actively managed funds continue to be satisfied with belowmarket returns?
... When a fund has a team management structure, an individual manager may feel that their actions are less observable and thus will be rewarded less by their employer and investors (Massa, Reuter, and Zitzewitz, 2010). Accordingly, managers who are part of team structures may have reduced incentives to invest in their own fund perhaps because team-managed funds tend to have more diversified portfolios that follow less extreme investment styles, and the fund's performance tends to be less extreme (Bar, Kempf, and Ruenzi, 2011). Thus, even if an individual manager's investments signal an alignment of interests, it is possible that fund performance may not be systematically related to the level of average managerial investments. ...
... We are able to trace how managerial investment stakes vary over time, and how such investments affect fund performance. Thus we add nuance to the understanding of earlier studies of managerial investments (Khorana et al., 2007;Evans, 2008) while also connecting this literature to the growing literature on team management structure (Massa et al., 2010;Bar et al., 2011). ...
... The average estimated alpha is 2.913 bps with the standard deviation being 3.971 bps. The average value of alpha for solo-managed funds (3.195 bps) is highly statistically significantly different from the average value for team-managed funds (2.599 bps), consistent with team-managed funds having less extreme returns (Bar et al., 2011). ...
We examine the determinants of managerial investments in mutual funds and the subsequent impacts of these investments on fund performance. By using panel data we show that investment levels fluctuate within funds over time, contrary to the common assumption that cross-sectional data are representative. Managerial investments reflect personal portfolio considerations while also signaling incentive alignment with investors. The impact of managerial investment on performance varies by whether the fund is solo- or team- managed. Fund performance is higher for solo-managed funds and lower for team-managed funds when managers invest more. These results are consistent with the higher visibility of solo managers, and less extreme investment returns of team-managed funds. Our results suggest investors may not benefit from all managerial signals of incentive alignment as managerial investments also reflect personal portfolio considerations.
... Do superstar fund managers undertake more or fewer risk-taking activities? To examine the research question, we follow the technique of Bar, Kempf and Ruenzi (2011) to create total risk variable which is measured as the standard deviation of a fund's return in the subsequent 12 months following the announcement of FMOY award as proxy for managerial risk-taking behaviors. We then decompose total risk into systematic and unsystematic risks. ...
... Second, we find funds with high turnover ratios to be associated with higher level of risk. Third, in contrast to Bar, Kempf and Ruenzi (2011), we find that funds managed by a large group of managers are associated with higher future risk-taking activities. ...
This paper examines the effect of fund managers’ status on funds’ subsequent money flows, performance, and risk-taking behaviors. Using the U.S. mutual fund industry as a laboratory from 1993 to 2013, this paper takes advantage of the shifts in fund managers’ status following the introduction of Morningstar’s Fund Manager of the Year (FMOY) award. While we find investors to respond positively to award-winning fund managers, we do not find such award-winning managers to generate positive risk-adjusted performance following receiving the award. Our further tests show that such underperformance is driven by diseconomies of scale rather than higher fund fees charged by award-winning managers. Finally, we do not find evidence that award-winning managers are taking on more risks due to overconfidence following receiving the FMOY award. Our results suggest that the ex-post value consequences of superstar status for investors are negative.
... Teams, more than just collectives engaged in mutual tasks, present complex dimensions studied across various fields, including organizational sociology, anthropology, organizational behavior, industrial psychology, sociometry, and social network analysis [8,17,31]. Echoing Aristotle's philosophy that the whole is greater than the sum of its parts, comprehending teams is key to understanding the evolution and future trajectory of industrial revolutions [29]. Their potential manifests in enhanced performance, improved quality through error identification and recovery [28], increased productivity via labor distribution, and fostering innovation [25]. ...
Rooted in collaborative efforts, cybersecurity spans the scope of cyber competitions and warfare. Despite extensive research into team strategy in sports and project management, empirical study in cyber-security is minimal. This gap motivates this paper, which presents the Collaborative Cyber Team Formation (CCTF) Simulation Framework. Using Agent-Based Modeling, we delve into the dynamics of team creation and output. We focus on exposing the impact of structural dynamics on performance while controlling other variables carefully. Our findings highlight the importance of strategic team formations, an aspect often overlooked in corporate cybersecurity and cyber competition teams.
... Teams, more than just collectives engaged in mutual tasks, present complex dimensions studied across various fields, including organizational sociology, anthropology, organizational behavior, industrial psychology, sociometry, and social network analysis [8,17,31]. Echoing Aristotle's philosophy that the whole is greater than the sum of its parts, comprehending teams is key to understanding the evolution and future trajectory of industrial revolutions [29]. Their potential manifests in enhanced performance, improved quality through error identification and recovery [28], increased productivity via labor distribution, and fostering innovation [25]. ...
Rooted in collaborative efforts, cybersecurity spans the scope of cyber competitions and warfare. Despite extensive research into team strategy in sports and project management, empirical study in cyber-security is minimal. This gap motivates this paper, which presents the Collaborative Cyber Team Formation (CCTF) Simulation Framework. Using Agent-Based Modeling, we delve into the dynamics of team creation and output. We focus on exposing the impact of structural dynamics on performance while controlling other variables carefully. Our findings highlight the importance of strategic team formations, an aspect often overlooked in corporate cybersecurity and cyber competition teams.
... According to Patel and Sarkinssian (2017), more than 70% of US domestic equity mutual funds have been team-managed in recent years. However, Bär, Kempf, and Ruenzi (2011) and Chen et al. (2004) find that teams provide significantly lower performance than single-managed funds based on market-adjusted returns and traditional factor alpha measures. ...
Numerous studies investigate the relationships between fund manager characteristics and fund performance. However, most evaluate fund performance by using traditional factor alphas, such as the Fama-French-Carhart four-and six-factor alphas. In the present study, we analyze data from Taiwanese equity mutual funds from January 2009 to December 2018 and reevaluate the relationships between fund manager characteristics (namely gender, education level, and tenure) and fund performance by using a recently proposed performance measure: the double-adjusted alpha. Double-adjusted alphas reflect fund manager skill more accurately than do the traditional four-or six-factor alphas because they control for returns attributable to fund holding characteristics. In contrast to the fact that team management has become the dominant management structure in the U.S. recently, domestic mutual funds in Taiwan are all managed by solo managers, and one manager can manage more than one fund. This solitary working environment in Taiwan's domestic fund industry motivates us to reexamine the relationship between fund performance and characteristics of these solitary managers at the manager level but through using the recently developed double-adjusted alpha method.
Our results indicate that female fund managers tend to achieve higher double-adjusted alphas than do male competitors, with the difference remaining significant over the 1, 6, and 12 months following the initial ranking month. Managers' education level and tenure do not have any statistically significant effect on either the double-adjusted four-or six-factor alpha values. However, using the traditional factor alpha measures would lead to different and misleading results. In contrast to the current literature, our findings provide new insights into the relationships between fund manager characteristics and fund performance.
... Research has shown that work practices and rules influence performance aspects in many industries (Bär, Kempf and Ruenzi, 2011;Evans, Prado and Zambrana, 2020). Similarly, in software firms, work practices affect code characteristics. ...
Due to their speed and accuracy, computerized decision‐making and data‐analysis systems are often perceived to be close to the ideal of unbounded rationality. Challenging this perception, this study explores the possibility that computerized systems reflect the individual characteristics of the developers who have designed and realized them. Through the analysis of interviews with high‐frequency trading system developers and a survey of software developers working in diverse industries, it shows that developers’ characteristics, which have been related to bounded rationality (e.g. experience and expertise), influence their codes’ performance and errors. Computer codes also reflect the personal circumstances of the developers (e.g. deadlines and stress), and their values. However, whereas some developers value code characteristics that are congruent with the ideal of unbounded rationality, including speed and accuracy, others aim to achieve characteristics that could be incongruent with it (e.g. code readability and modularity). Developers’ roles and organizational practices, such as testing procedures and code reviews, limit the expression of their characteristics in their codes. Nevertheless, developers can be often identified by reading the codes. Highlighting that developers transfer some of their characteristics to their codes, this study identifies elements of bounded rationality in decision‐making systems and extends organizational decision‐making research.
... The positive coe cients for the T dummy (p < 0.05), however, suggest that, on average, team managed funds outperform single-managed funds by approximately 80 basis points per year in abnormal returns (column R abn ). The latter result adds to a so far inconclusive literature: While some studies investigating the (risk-adjusted) performance of equity funds do not nd di erences between team-managed and single-managed funds (see, e.g., Bliss et al., 2008;Massa et al., 2010), others report that single-managed funds even outperform team-managed funds (see, e.g., Bär et al., 2011;Chen et al., 2004). On the contrary, Patel and Sarkissian (2017) provide evidence that team-managed funds add on up to 30-40 basis points per year to gross performance as compared to single-managed funds, and argue that the lack of evidence on performance bene ts of team-managed funds in previously published studies is due to discrepancies in reported managerial structures in various data sources. ...
By running a battery of experiments with fund managers, we investigate the impact of cognitive skills and economic preferences on their professional decisions. First, we find that fund managers’ risk tolerance positively correlates with fund risk when accounting for fund benchmark, fund category, and other controls. Second, we show that fund managers’ ambiguity tolerance positively correlates with the funds’ tracking error from the benchmark. Finally, we report that cognitive skills do not explain fund performance in terms of excess returns. However, we do find that fund managers with high cognitive reflection abilities compose funds at lower risk.
... Second, mutual funds and private funds in China are dominated by pervasive solo portfolio managers, a situation that is in dramatic contrast to the typical team management structure in the US. (Bär, Kempf, & Ruenzi, 2010;Karagiannidis, 2010;Chen et al., 2018). As a result, we can test whether the change in investment skills of fund managers following a career switch affects their performance in private funds. ...
We evaluate how work experience in mutual funds affects manager skills after they switch to private funds. Using a proprietary Chinese private fund database from 2012 to 2016, we document that, despite their work experience in mutual funds, switched private fund managers significantly underperform compared with their peer managers in private funds. In particular, the investment skills of smart managers with superior track records in mutual funds deteriorate after the career switch. Moreover, the reduction in skills of smart managers is mainly attributable to the loss of corporate research support in private funds. Our findings demonstrate that the skill sets of mutual fund managers are hardly transferable to the private fund industry.
... Multiple researchers followed this hypothesis and analyzed various aspects and implications such as different time periods, competition within fund families, the impact of the selected fund segment, among others. Important ideas and results can be found in the works of Chevalier and Ellison (1997), Busse (2001), Deli (2002), Kempf and Ruenzi (2008a), Kempf and Ruenzi (2008b), and Bär et al. (2010). Despite the findings of all these researchers, there are still contrary opinions about the existence of such tournament behavior between managers and especially the exact behavioral aspects for winners and losers, respectively. ...
Measuring mutual fund managers’ skills by Microsoft’s TrueSkill algorithm, we find highly skilled managers to behave self-confident resulting in higher risk-taking in the second half of the year compared to less skilled managers. Introducing the TrueSkill algorithm, which is widely used in the e-sports community, to this branch of literature, we can replicate previous findings and theories suggesting overconfidence for mid-years winners.
... By considering carbon risk management, our article complements previous studies that report that managerial ownership aligns managers' risk-taking incentives, as funds with greater managerial ownership are associated with mitigated low-carbon transition risk. Second, we contribute to the literature that contends that team-management shapes portfolio risk and performance (Prather and Middleton, 2002;Bliss, Porter and Schwarz, 2008;Bar, Kempf and Ruenzi, 2011;Patel and Sarkissina, 2017). Consistent with most studies reporting that team-managed funds perform no better than single-managed funds, our evidence shows that team size is not decisive in determining the carbon risk level of a fund portfolio. ...
Transitioning to a low-carbon economy to mitigate the effects of climate change involves risks. We investigate the effects of managerial ownership and management on the low-carbon transition risk of mutual fund portfolios and the effects of low-carbon transition risk on mutual fund performance and flows. Using a low-carbon transition risk measure based on the unmanaged carbon risk of companies included in fund portfolios, we find that managerial ownership and the socially responsible focus of the fund reduces fund portfolio exposure to carbon risk, whereas active management has the opposite effect. Furthermore, funds with low-carbon transition risk levels yield a better risk-adjusted performance, are more sensitive to tail risks and exhibit better flow performance.
... We have followed Bar, Kempf and Ruenzi (2011) to quantify mutual funds' risk extremity using following method, where, , = extreme market strategy measure for each v market strategy, that is, size, value and momentum, , = coefficient of market strategy 'v' for i th fund for t year, and ̅ , = average of coefficients of v market strategy for k type of mutual funds. ...
The study aims to analyse whether performance of mutual fund could be attributed to differential in information access and organization culture which we propose could exist due to ownership pattern and background of sponsor. By utilizing the data on Indian equity mutual funds with growth objective for the period 2005-2013, we have compared performance and risk strategy of mutual funds having different ownership and sponsor background by applying portfolio approach and regression method. The results provided that performance measured with conditional Carhart alpha have been significantly different among mutual funds with different type of ownership and sponsor background though the results have been specific to style of mutual funds. In particular foreign mutual funds, joint venture of domestic and foreign funds performed significantly better than domestic mutual funds (which have been Indian private, Indian joint venture and institutional joint venture funds). Further non-finance and finance company sponsored mutual funds performed better than banking sponsored mutual funds. There has also been significant difference in the trading strategy of mutual funds based on ownership pattern and sponsor background. The foreign ownership mutual funds have not been mere naive traders in Indian stock market. The findings do not support information bias theory in the context of Indian stock market as foreign owned mutual funds have not been naïve traders but better performers which could be due to cultural differences based on ownership and sponsor background.
... We have followed Bar, Kempf and Ruenzi (2011) to quantify mutual funds' risk extremity using following method, where, , = extreme market strategy measure for each v market strategy, that is, size, value and momentum, , = coefficient of market strategy 'v' for i th fund for t year, and ̅ , = average of coefficients of v market strategy for k type of mutual funds. ...
The study aims to analyse whether performance of mutual fund could be attributed to differential in information access and organization culture which we propose could exist due to ownership pattern and background of sponsor. By utilizing the data on Indian equity mutual funds with growth objective for the period 2005-2013, we have compared performance and risk strategy of mutual funds having different ownership and sponsor background by applying portfolio approach and regression method. The results provided that performance measured with conditional Carhart alpha have been significantly different among mutual funds with different type of ownership and sponsor background though the results have been specific to style of mutual funds. In particular foreign mutual funds, joint venture of domestic and foreign funds performed significantly better than domestic mutual funds (which have been Indian private, Indian joint venture and institutional joint venture funds). Further non-finance and finance company sponsored mutual funds performed better than banking sponsored mutual funds. There has also been significant difference in the trading strategy of mutual funds based on ownership pattern and sponsor background. The foreign ownership mutual funds have not been mere naive traders in Indian stock market. The findings do not support information bias theory in the context of Indian stock market as foreign owned mutual funds have not been naïve traders but better performers which could be due to cultural differences based on ownership and sponsor background.
... Since this behaviour of fund manager would be undesirable for investor, therefore, it would be important to investigate whether educational credentials has any effect on these. Following Bär, Kempf and Ruenzi (2011), the investment strategy extremity and performance extremity measures have been defined as follows: ...
The investors of mutual funds can reduce their selection risk by selecting the mutual funds based on certain criteria. One such criterion could be educational credentials of fund manager. The present study has examined whether performance of mutual funds could be attributed to differentials in educational credentials of fund manager and thereby can provide necessary signals to investors. The study has compared performance and investment strategy of fund managers having management degree from premier management institutions with others having CA/CFA/ICMA qualification. The results provide that performance between these two groups of fund managers don't differ significantly. However, difference in performance became significant after controlling for various fund characteristics such as size, expense ratio, liquidity ratio, and flow of funds. The results showed that the fund managers with premier management degree were performing better than the other group and also, followed more extreme investment strategy. This suggests that relation between a fund performance and educational credentials may be moderated by control variables. Further, the study has examined whether the relation between educational credentials of fund manager and performance and investment strategy has been impacted by different time periods of economic cycle. The examination in different sub-periods of economic cycle provided better performance of fund managers with premier management education particularly during crisis period of economy. The performance differentials due to educational credentials have been independent of investment strategy of fund managers.
... The total population database can be found at https://data.worldbank.org/indicator/SP.POP.TOTL.9 Previous literature documents that team-managed and single-managed funds are different in portfolio choices and performance (see, e.g.,Bär, Kempf, & Ruenzi, 2011;Patel & Sarkissian, 2017).10 To provide additional support for this identification, I follow the approach used byKumar et al. (2015) to identify US managers with foreign-sounding names.I randomly pick 50 US managers in my sample and find that only four of them are classified as with foreign-sounding names. ...
I find that home‐country culture affects portfolio managers’ investment risk‐taking and performance. I focus on security value, which measures the degree to which people in a country assign importance to security, safety, and stability. Funds managed by managers from countries with higher security value exhibit lower fund return volatility, trade less frequently, and follow benchmarks more closely. These funds also tend to avoid lottery‐type stocks and hence perform significantly better. However, the impact of home‐country security value decays as managers spend more time away from their home countries.
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... The stark differences in average portfolio size also suggest that a fixed dollar investment opportunity will have a much larger impact on the return of the typical manager's $262 million hedge fund than on her much larger mutual fund or separate account, as discussed in Section 2.2 . Massa et al. (2010) and Bar et al. (2011) document a secular decline in the percentage of mutual funds with a single manager from 1994 to 2004. Patel and Sarkissian (2017) show that this trend continues until their sample ends in 2010, when 71% of funds have multiple managers. ...
We examine the performance of mutual funds whose managers simultaneously manage portfolios with performance-based incentive fees for three account types: mutual funds, hedge funds, and separate accounts. Importantly, our data set is free of selection bias because it is hand-collected from mandatory SEC filings. We find that only funds whose managers also manage hedge funds significantly underperform peer mutual funds. Moreover, underperformance begins only after fund managers begin to manage a hedge fund. We find that managerial incentives and opportunities for cross-subsidization explain variation in underperformance across funds, supporting the conflicts of interest hypothesis in the debate on “side-by-side management.”
... Massa, Reuter, and Zitzewitz (2010) and Bar, Kempf, and Ruenzi (2011) document a secular decline in the percentage of mutual funds with a single manager from 1994 to 2004. Patel andSarkissian (2016) show that this trend continues until their sample ends in 2010, when 71% of funds have multiple managers. ...
... Since this behaviour of the fund manager would be undesirable for an investor, it would be important to investigate whether educational credentials have any effect on these. Following Bär, Kempf and Ruenzi (2011), the investment strategy extremity and performance extremity measures have been defined as follows: ...
The investors of mutual funds can reduce their selection risk by selecting the mutual funds based on certain criteria. One such criterion could be the educational credentials of fund managers. The present study has examined whether performance of mutual funds could be attributed to differentials in educational credentials of fund managers and thereby can provide necessary signals to investors. The study has compared performance and investment strategy of fund managers having management degree from premier management institutions with others having CA/CFA/ICMA qualification. The results show that the performance between these two groups of fund managers does not differ significantly. However, the difference in performance became significant after controlling for various fund characteristics, such as size, expense ratio, liquidity ratio and flow of funds. This suggests that the relation between fund performance and educational credentials may be moderated by control variables. The results showed that the fund managers with a premier management degree were performing better than the other group and that they also followed a more extreme investment strategy. Further, the study has examined whether the relation between educational credentials of fund managers and performance and investment strategy has been impacted by different time periods of economic cycle. The examination in different sub-periods of economic cycle provided better performance of fund managers with premier management education, particularly during crisis period of economy. This performance differential due to educational credentials during the crisis period have been independent of the investment strategy of fund managers.
... It is well known anecdotally that all funds and fund managers are not regarded as equal within their fund families so there may be rivalry within firms which leads to tournament like behaviour. Decision taking by individual managers and the restraining elements of teams are considered by Bär, Kempf, and Ruenzi (2011) utilising the diversification of opinions and the group shift decision making theories. They find that teams have a moderating influence on each other and consequently have less extreme investment styles, less concentrated portfolios, and therefore have less extreme performance outcomes. ...
... In this section we attempt to understand the influence of some variables as a source of differences in mutual fund efficiencies. In this regard, although the literature is remarkable (see, for instance Bär et al., 2011;Golec, 1996;Atkinson et al., 2003;Niessen and Ruenzi, 2007;Hambrick and Mason, 1984;Malhotra et al., 2007;Porter and Trifts, 1998;Wermers, 2003;Gottesman and Morey, 2006;Ippolito, 1989;Elton et al., 1993a, among others), we will make an attempt to synthesize it, splitting the analysis of determinants into three main sources of variation, or types of information that may influence fund performance, namely: (i) some fund characteristics; (ii) some fund management characteristics; and (iii) environmental factors such as the wealth of the region where investments take place. ...
Islamic funds are increasingly seen as an alternative to conventional funds, in part due to the growing prominence of Islamic finance. In contrast to most previous literature, this paper focuses on the countries of the Middle East and North African region (MENA), and compares the performance of Islamic and conventional funds during crisis and recovery periods. Results show that the relative performance of Islamic and conventional funds seem to be conditioned by several factors such as the (geographical) context in which the investment is made. Considering the entire MENA region, Islamic funds perform, on average, slightly worse than conventional funds. However, if the analysis is restricted to Gulf Cooperation Council (GCC) countries, the result opposite is found. In addition, the performance gap between the two types of funds either widens or shrinks when considering recovery or crisis times, providing evidence that Islamic funds are more stable in times of distress.
... Bliss et al. (2008), using a sample of about 3,000 equity mutual funds over a 12-year timespan, find that although the number of funds managed by teams has grown at seven times the rate of funds managed by a single manager, no significant difference in risk-adjusted performance is observed between team-managed and individually-managed funds. Bar et al. (2011), considering a sample of U.S. equity mutual funds, find that teams take less extreme decisions than singles. Bogan et al. (2013) investigate whether the gender composition of fund management team influences investment decision making behavior. ...
p class="ber-body"> This paper examines the relationship between asset managers’ nationality and the Italian occupational pension funds extending the existing literature on the topic. We use a double analysis methodology, targeted at single- and multiple-managers, distinguishing between Italian and/or foreign professional managers. The results obtained show how asset manager’s nationality impacts differently on managed pension funds’ performance according to the different investment line risk level, opening debate on asset managers’ management skills. </p
... We analyse whether different fund ownership has been related to follow extreme trading strategy. We have followed Bar et al. (2011) to quantify mutual funds' risk extremity using following method, , , We normalise the absolute value of coefficient difference. We have further regressed measure of extreme market strategy with fund variables. ...
The study aims to analyse whether performance of mutual fund could be attributed to differential in information access and organisation culture which we propose could exist due to ownership pattern and background of sponsor. By utilising the data on Indian equity mutual funds with growth objective for the period 2005-2013, we have compared performance and risk strategy of mutual funds having different ownership and sponsor background by applying portfolio approach and regression method. The results provided that performance and risk strategy have been significantly different among mutual funds with different type of ownership and sponsor background. In particular foreign-owned mutual funds performed significantly better than domestic mutual funds. The foreign mutual funds have not been mere naive traders in Indian stock market. The findings do not support information bias theory in the context of Indian stock market and better performance of foreign funds could be due to cultural differences based on ownership and sponsor background.
... The mutual fund performance literature is usually concerned with analyzing whether managers add value from the investor's perspective (Bär, Kempf, & Ruenzi, 2011). To this end, net returns are used in performance models from Eq. (6). ...
This paper analyzes persistence in US equity mutual fund performance over the period 1990–2015. We apply commonly used measures of persistence, which we test using a set of simulated passive funds. In the first stage we apply contingency tables and transition matrices in accordance with previous literature. Results show how these methodologies are biased towards finding evidence of persistence too easily. In the second stage, we take a recursive portfolio approach, which assesses the performance of investing by following recommendations based on past performance. Results show the importance of both estimating persistence by distinguishing among fund style groups, and considering the cross-sectional significance of recursive portfolios. In general, our results support evidence of persistence in mutual fund performance, especially for the case of the best mutual funds. However, this evidence does not hold for the most recent subperiod, 2008–2015. Empirical evidence of persistence is conditioned by the sample period, a result that could explain the inconclusive results found in the literature.
... Social category diversity had a negative impact on performance, and it was driven by gender diversity while age diversity had no strong impact. In terms of portfolio risk and style, most studies pointed to the conclusion that single manager takes on more risk, making more extreme decisions (Baer, Kempf & Ruenzi, 2011), and adjusting their portfolioes more often in the face of risk considerations (Qiu, 2003). ...
Pur pose: Along with mutual funds' scale and quantity expanding, it is common for fund management companies hiring new managers or the original fund managers mobilizing from one to another. The high liquidity of fund managers makes different managers regroup to manage the funds that belong to the same fund management company in each fund year. The characteristics of these different management teams will influence the fund performance, and also affect the earnings of the fund management companies and portfolio investors. The purposes of this paper are as follows. First, evaluating the effect of management team characteristics on portfolio characteristics: risk, performance, and extremity. Second, testing the hypothesis that the ranking of mid-year performance have effect on investment style extremity and researching what relationship exists between this phenomenon and management team characteristics in depth. Design/methodology/approach: On the analysis of the relationships between the management team characteristics and portfolio characteristics, a series of OLS regressions were run. The time series regression model (the factor model) and cross-sectional regression were included based on using the STATA, EVIEWS and MATLAB. All of the above were aimed at achieving portfolio optimization and realizing the maximization of the interests for fund management companies and investors. Findings: The main findings are as follows. Teams with more degrees(MBA, CPA and CFA) held more risky portfolios, while teams with long team tenure held less. More members, large age diversity and long team tenure had positive effect on performance, and the opposite was gender diversity. Teams with more members tend to hold less extreme style decisions, but gender diversity and long tenure were related to more. Besides, tournament hypothesis did exist in China investment funds industry especially when the economy was in a downward phase, and fund managers were more likely to increase the risk of portfolio when their term was coming to an end. Research limitations/implications: The primary limitation in the scope is the sample. The funds in our sample whose ages have to be more than one year, so the funds that can reach the condition are not a lot. It may affect the accuracy of the results on some degree. Practical implications: These findings have important implications for fund management companies as they try to form a highly efficient management team as well as for individual investors' investment allocation decisions. Originality/value: This paper proposes a new perspective to evaluate the relationship between the management team characteristics and portfolio characteristics. It focuses on the fund management companies rather than a single fund.
... It is well known anecdotally that all funds and fund managers are not regarded as equal within their fund families so there may be rivalry within firms which leads to tournament like behaviour. Decision taking by individual managers and the restraining elements of teams are considered by Bär et al. (2011) utilising the diversification of opinions and the group shift decision making theories. They find that teams have a moderating influence on each other and consequently have less extreme investment styles, less concentrated portfolios and therefore have less extreme performance outcomes. ...
We review the recent trends in investment management and performance research and highlight the fields expected to develop further in the future. The trend to adapt the classic CAPM and factor models seems likely to continue, with the drive for realistic factors, which best proxy the drivers of investment performance, playing a key role. The search for skill, based on enhanced benchmarks is also a developing area, with new concepts of identification and verification at the fore. The availability of more qualitative data has allowed corporate finance themes such as agency conflict and incentives to be explored. These are some of the areas where we have seen major developments in recent years and where we expect to see continuing development.
... etails see Section 3.2Ackert et al. (2012) report that hiding information of past realizations prevents subjects in their experiment from exhibiting the gambler's fallacy in portfolio decision experiments. This approach, however, seems practically impossible, given the large amount of available financial data and the attention this data generates.3Bär et al. (2011) document that teams of fund managers implement less extreme investment styles and less industry concentrated portfolios. In an experimentRockenbach et al. (2007) find that team decisions are better in line with Portfolio Selection Theory than individual decisions, leading to a better risk-return ratio.Keck et al. (2014) demonstrate that ...
In laboratory experiments we explore the effects of communication and group decision making on investment behavior and on subjects’ proneness to behavioral biases. Most importantly, we show that communication and group decision making do not impact subjects’ overall proneness to the hot hand fallacy and to the gambler's fallacy. However, groups decide differently than individuals, as they rely significantly less on useless outside advice from “experts” and choose the risk-free option less frequently. Furthermore we document gender differences in investment behavior: groups of two female subjects choose the risk-free investment more often and are marginally more prone to the hot hand fallacy than groups of two male subjects.
... Similarly, when annuities are discussed using a "consumption 31 Overconfidence is very common in human decision making. It is particularly common in investment decision making by both retail investors (Odean, 1999;Grinblatt and Keloharju, 2009) and institutional investors (Barber and Odean, 2001;Ekholm and Pasternack, 2008;Bar et al., 2011;Puetz and Ruenzi, 2011). Overconfidence can be explained by a self-attribution bias, whereby individuals update their beliefs about their own ability as being attributable to skill following good outcomes, but due to bad luck after bad outcomes. ...
This article examines how behavioral economics can be used to improve the spending decisions of retirees, using a SPEEDOMETER (or Spending Optimally Throughout Retirement) retirement expenditure plan that employs defaults within a choice architecture. The plan involves just four key behavioral nudges: (1) first, make a plan—ideally by being auto-enrolled into one or with the help of a financial adviser; (2) automatic phasing of annuitization, which is designed to tackle the aversion to large irreversible transactions and losing control of assets, and so allows the greatest possible degree of flexibility in managing the rundown of retirement assets; (3) capital protection in the form of “money-back” annuities that deals with loss aversion, that is, the fear of losing your money if you die early; and (4) the slogan “spend more today safely” that utilizes hyperbolic discounting to satisfy the human trait of wanting jam today, and to reinforce the idea that “buying an annuity is a smart thing to do.”
... Golec (1996) relates manager tenure to performance and Khorana, Servaes, and Wedge (2007) show that managerial ownership affects performance. Some of the recent papers in this strand of literature include Nohel, Wang, and Zgeng (2010), Baer, Kempf, andRuenzi (2011), Cici, Gibson, andMoussawi (2010), and Deuskar, Pollet, Wang, and Zheng (2012). ...
This article presents an overview of the mutual fund industry in India and the reasons for its poor penetration, which includes lack of objective research. It benchmarks the industry globally, and raises key issues regarding the ownership and performance of mutual funds, the sensitivity of fund flows to performance, and the importance of regulation to its growth, all of which have been largely under researched in India. It then captures the views of leading practitioners on these and other issues, including the challenges posed by poor financial literacy, the equity culture in the country, and the weakly supportive regulatory environment .
This study responds to the need for deeper empirical investigations into the relationship between board gender diversity (BGD) and corporate environmental responsibility (CER) within the banking industry. Specifically, it investigates whether and how BGD in banks causes higher engagement in CER. To address this research question, we analyzed a sample of 132 global banks over the 2009–2019 period. The results from fixed effect panel regressions indicated that national gender inequality negatively moderates the positive influence of BGD on the CER engagement of banks. Disentangling CER into its sub‐pillars, we found that BGD affects these subdimensions differently. A higher proportion of female directors on the bank's board mainly affects CER in terms of eco‐innovation and emission management. These findings are relevant for the efficiency of new banking business models, for policymakers and for the broader spillover benefits to the worldwide community.
The current paper analyzes whether and to what extent gender diversity (GD) in investment management teams impacts equity mutual funds' interest in the environmental, social and governance (ESG) policies of target firms. The impact of GD has been investigated from a dual perspective: the link between the proportion of women on management teams and the application of ESG screens and the role of critical mass theory in teams' decision‐making process. Based on a sample of 212 European equity mutual funds over the 2014–2018 study period, we find a positive impact of the proportion of women and critical mass on the ESG rating of investment portfolios. Evidence from the current study advances the literature on the GD effect and ESG screening while providing additional indications for equity mutual funds seeking the best ESG performance and sustainable development of target firms.
This paper examines whether equity‐allocation shifts (equity‐holding and equity‐style shifts) jeopardize retirement savings in U.K. equity pension funds. Fund‐style shifts may deviate pension funds from their original risk profile and expose participants to undesired results. Nonetheless, these shifts may be the result of an active management to adapt to market cycles. Financial literature usually points out the policy‐allocation importance versus the active management in explaining fund returns; however, we find significant relation between them. Our results show that managers vary their portfolios to add value, avoid the constraints of preserving consistent styles, and adapt to market conditions. Participants do not negatively react to style changes because top shifter funds are run by skillful managers and outperform. Nevertheless, managers must be aware of their limitations and the risk taken with this strategy. Poor skilled managers do not successfully implement style‐shift strategies, especially in crises.
This study analyzes the characteristics of penny stocks and the benefits of including them in fund portfolios. First, we show that penny stocks provide abnormal returns that are not explained by traditional factor models; the liquidity factor seems to account for the excess performance. Second, we find that penny stocks can serve as a powerful investment vehicle for expanding the efficient frontier of the conventional investment set and that including them in fund portfolios improves a fund's performance. Third, we find that penny stocks held more by funds provide excess returns even for a 5‐factor model that includes a liquidity factor.
This study elucidates the link and effect of ethical reinforcement in the post‐financial crisis era by taking two congruent directions to demonstrate that ethical reinforcement can be accomplished by either a continuous ethical training or a meticulous code of business ethics—which members of the mutual fund industry claim they adhere to—as both have a positive effect on the funds’ performance, including sizeable gains to investors. Furthermore, evidence divulges that ethical reinforcement moderates the performance of ethical or socially responsible investments (SRI) funds more than nonethical investments, suggesting that a perspective of ethical or SRI classification of a fund alone is not sufficient, but it is necessary to have the institutional ethical environment and/or managers’ continuous ethical training. This result supports the notion of financial market discipline and reveals some factors behind SRI or ethical funds returns, notably during the period following the recent financial crisis.
This paper develops an innovative slacks-based manager efficiency index (SMEI) to evaluate the efficiency of mutual fund managers. First, the SMEI contributes to decisions by evaluating the efficiency of the manager as a whole instead of focusing on individual mutual funds. Second, the SMEI includes socio-demographic variables to extend the mere consideration of financial variables in the model. Third, the SMEI identifies locally efficient but globally inefficient managers. This local SMEI evaluates managers in reference to the ‘best practice’ competitors with similar management characteristics. Finally, this paper includes a real application of the SMEI in a sample of individual managers in the Spanish mutual fund industry. This empirical illustration further examines the persistence of the efficiency scores and the influence of the SMEI variables on the efficiency of individual managers.
Human capital acquired while working in other industries before joining fund management provides fund managers with an information advantage. Fund managers exploit this advantage by overweighting their experience industries and by picking outperforming stocks from these industries. These managers’ superior information is impounded into stock prices slowly, suggesting that their information is unique and takes a while to be discovered by the markets. Families exploit their manager’s industry-specific human capital by broadly employing their investment ideas in other funds. The investment value of industry experience is unaffected by whether or not the manager with such experience is in a team.
Received August 25, 2016; editorial decision December 24, 2017 by Editor Andrew Karolyi.
This paper brings together the academic literature on individual and institutional investors in order to understand the nature of difficulties faced by them and set the background for the Special Issue. This introductory article and the papers in the Special Issue contribute to the debate on how to support individuals in their savings commitments and investment decision-making and whether and how institutional investors have fulfilled their role in supporting the development of the funded pension industry. There are three main conclusions: (i) individual investors are not ready for the role that has been assigned to them in the pension industry, (ii) institutional investors are a long way short of establishing healthy relational contracts and trustworthy relationships with their clients, and (iii) more effective regulation may be needed.
In May 2013, the U.S. Federal Reserve announced the beginning of the end of the program of monthly security purchases, the so-called “tapering.” The announcement was associated with large investor outflows to EM funds and large fund re-allocations across countries and stocks. Unexpected flow-implied fund upward (downward) allocations are associated with positive (negative) individual security returns following the announcement. The effect is pronounced EM stocks that had positive cumulative abnormal returns around earlier Federal Reserve asset-purchase announcements leading up to the taper. It is concentrated in more liquid, smaller capitalization stocks and is stronger for forced trades among active funds.
Das internationale Bankensystem stand in den vergangenen Jahren im Fokus des öffentlichen Interesses. Bei der Diskussion möglicher Optionen zur Verbesserung der Finanzsystemstabilität rückt zunehmend die Corporate Governance in Banken in den Fokus. Der vorliegende Forschungsbericht widmet sich zwei bislang wenig untersuchten Aspekten der Corporate Governance: der Expertise der Vorstandsteams und den Anreizstrukturen der Bankmitarbeiter. Beide Aspekte werden für den deutschen Bankenmarkt anhand von je zwei empirischen Untersuchungen diskutiert. Diese basieren auf zwei einzigartigen Datensätzen. Für die Analyse der Vorstandsteams wurde ein eigener biographischer Datensatz zusammengetragen. Für die Analyse der Mitarbeiteranreizstrukturen konnte ein vertraulicher Datensatz eines internationalen Personalberatungsunternehmens untersucht werden. Die Analyse verdeutlicht einen substanziellen Einfluss beider Aspekte. Banken mit kompetenteren Vorstandsteams wiesen signifikant bessere Profitabilitäts-, Risiko- und Effizienzmaße auf. Im Hinblick auf die Bonusniveaus der Bankmitarbeiter zeigt sich eine hohe Heterogenität, sowohl zwischen einzelnen Banken als auch zwischen Geschäftsbereichen. Betrachtet man die Kapitalmarktbereiche der Banken, zeigen sich außerdem exzessiv starke Anreize für den Zeitraum zwischen 2003 und 2007. Die Moderation der Bonusniveaus in den Krisenjahren scheint allerdings zu drastisch ausgefallen zu sein: die Anreize in den Jahren 2008-2011 waren scheinbar zu schwach, um den Shareholder-Value der Kapitalmarktaktivitäten zu maximieren.
We analyze what a second business degree reveals about the investment behavior of mutual fund managers. Specifically, we compare the investment risk and style of managers with both a CFA designation and an MBA degree to managers with only one of these qualifications. We document that managers with both degrees take fewer risks, follow less extreme investment styles, and achieve less extreme performance outcomes. Our results are consistent with the explanation that managers with a certain personal attitude that makes them take fewer risks and invest more conventionally choose to gain both qualifications. We rule out several alternative explanations: our results are not driven by the respective contents of the MBA and the CFA program, by the manager's skill, or by the fund family's investment policy.
This paper surveys and critically evaluates the literature on the role of management effects and fund characteristics in mutual fund performance. First, a brief overview of performance measures is provided. Second, empirical findings on the predictive power of fund characteristics in explaining future returns are discussed. Third, the paper reviews the literature on fund manager behavioural biases and the impact these have on risk taking and returns. Finally, the impact of organizational structure, governance and strategy on both fund risk taking and future performance is examined. While a number of surveys on mutual fund performance are available, these have not focused on the role of manager behavioural biases, manager characteristics and fund management strategic behavior on fund performance and risk taking. This review is an attempt to fill this gap. Empirical results indicate that finding successful funds ex-ante is extremely difficult, if not impossible. In contrast, there is strong evidence that poor performance persists for many of the prior “loser fractile” portfolios of funds. A number of manager behavioural biases are prevalent in the mutual fund industry and they generally detract from returns.
We assess the abilities and the role of buy-side analysts within mutual fund families by analyzing mutual funds managed by buy-side analysts from fourteen fund families. Buy-side analysts exhibit investment abilities by realizing positive style- and risk-adjusted returns and generating superior risk-return tradeoffs. Analysts’ skills have a positive impact on the performance of funds from the same family. Although some managers benefit from closely following their buy-side analysts’ ideas, research generated by these analysts is generally being underutilized by affiliated managers. The underutilization is consistent with longer-tenured managers choosing to forgo some of the analysts’ ideas due to career considerations.
This paper experimentally studies the disposition effects of teams and individuals. The disposition effect describes the phenomenon that investors are reluctant to realize losses, whereas winners are sold too early. Our experiments compare the investments of two-person teams to a setting where investors trade alone. We find that subjects investing jointly exhibit more pronounced disposition effects than individuals. A closer look reveals that investor teams hardly realize losses and predominately sell winners. The data suggest that decision-dependent emotions may explain the differences. That is, teams reporting high levels of regret exhibit significantly higher disposition effects than individuals.
In this study, we examine the effect of mutual fund connections, through managerial sharing, on performance and stock holding commonalities. Our analysis of return correlations and portfolio holdings indicates that more interconnected funds tend to buy and sell similar stocks, hence increasing the similarity of portfolio holdings and undermining the distinctiveness of their investment strategy. Our results also indicate that highly connected funds significantly underperform weakly connected funds by about 1.4% on a yearly risk-adjusted basis. We show that fund family performance is unaffected by the intensity of fund connections, and that greater fund connections could significantly enhance family-level profit margins.
In this article, I measure and compare the equity and bond market timing ability of hybrid-funds of funds (FOFs) and traditional hybrid funds. Hybrid mutual funds are funds that are invested in a combination of stocks and bonds. Hybrid funds of mutual funds are those that hold shares of other equity and fixed-income mutual funds. This fundamental difference between these two types of hybrid funds makes them an ideal laboratory to examine their stock market timing ability. Using daily fund and index data, I implement a multi-factor timing model, which successfully controls for the fixed-income exposure of hybrids funds. I find that, as a group, hybrid funds failed to correctly time both the equity and bond markets. In addition, I find no difference between the market timing ability of hybrid-FOFs and traditional hybrids.
We use the financial crisis of 2007–2009 as a laboratory to examine the costs and benefits of teams versus single managers in asset management. We find that when a fund uses complex trading strategies involving the use of CDS team-managed funds outperform solo-managed funds. This may be due to the greater diversity of expertise, experience and skill of teams relative to single managers. During the financial crisis, however, the performance premium of teams becomes negative, which may be because of the slower decision times of teams, which are especially costly during times of rapidly changing market conditions.
This paper investigates the impact of team diversity on mutual fund performance. Analyzing management teams from the U.S. mutual fund industry we show that the impact of diversity on fund performance depends on a trade off between information gains and communication costs. We find that information gains dominate in tenure and educational diverse teams which leads to higher fund performance. Communication costs dominate in gender diverse teams which leads to lower fund performance. Our results are consistent with the diversity theory developed in Lazear (1999).
An experiment investigating the influence of information exchange (the number and persuasiveness of arguments) on group polarization and choice shifts found both the number and the persuasiveness of arguments to have significant influences. The results generally supported Persuasive Arguments Theory, al-though a weighted-average version of the theory was found to be incomplete since it did not provide for the effects of number of arguments. The results also supported the importance of distinguishing between group polarization and choice shifts-the individual and group levels of analysis respectively.
Purpose
The paper aims to examine the effect of advertising on mutual fund cash flows in the Finnish fund market.
Design/methodology/approach
The paper's unique data set allows the observation of the effects of monetary advertising spending and the choice of advertising media.
Findings
The paper finds that neither past year's performance nor advertising alone is sufficient to produce increased cash flows. However, advertising together with past performance is found to significantly affect cash flows. The positive effect of advertising is limited to the use of non‐perishable advertising media. Additionally, it is found that fund families spending proportionately more on advertising receive higher asset flows.
Originality/value
The data are unique in that they can identify fund families that advertise, and also how much they spent on advertising in a given year and the dollar amount spent on five different media types. Obviously, having also fund level data available would enable more thorough analysis.
Conducted 2 experiments in which a total of 57 undergraduates judged the competence of another who was either high or low in ability and who took an extreme or moderate attitude position on one side of an issue. Results confirm the prediction that individuals with a moderate attitude position attribute greater competence to another with an extreme rather than moderate position if the other is initially perceived as high in ability; but if the other is initially perceived as low in ability, then greater competence is attributed to a moderate rather than extreme position. Results are discussed in relation to social comparison theory, polarization of attitudes in groups, and communicator credibility and amount of change advocated. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
European Finance Meetings, the European Financial Management Meetings. The suggestions of Jan Mahrt-Smith have been extremely useful in the development of some of the tests in this paper. We are grateful to the Financial Services Exchange for financial support.
We estimate parameters of standard stock selection and market timing models using daily mutual fund returns and quarterly
measurement periods. We then rank funds quarterly by abnormal return and measure the performance of each decile the following
quarter. The average abnormal return of the top decile in the post-ranking quarter is 39 basis points. The post-ranking abnormal
return disappears when funds are evaluated over longer periods. These results suggest that superior performance is a short-lived
phenomenon that is observable only when funds are evaluated several times a year.
Existing studies of mutual fund market timing analyze monthly returns and find little evidence of timing ability. We show that daily tests are more powerful and that mutual funds exhibit significant timing ability more often in daily tests than in monthly tests. We construct a set of synthetic fund returns in order to control for spurious results. The daily timing coefficients of the majority of funds are significantly different from their synthetic counterparts. These results suggest that mutual funds may possess more timing ability than previously documented.
We study the choice between named and anonymous mutual fund managers. We argue that fund families weigh the benefits of naming managers against the cost associated with their increased future bargaining power. Named managers receive more media mentions, have greater inflows, and suffer less return diversion due to within family cross-subsidization, but departures of named managers reduce net flows. Naming managers became less common between 1993 and 2004. This was especially true in the asset classes and cities most affected by the hedge fund boom, which increased outside opportunities for, and the cost of retaining, successful named managers.
by James Arthur Finch Stoner.
Although a considerable amount of research in personality psychology has been done to conceptualize human personality, identify the ''Big Five'' dimensions, and explore the meaning of each dimension, no parallel research has been conducted in consumer behavior on brand personality, Consequently, an understanding of the symbolic use of brands has been limited in the consumer behavior literature. In this research, the author develops a theoretical framework of the brand personality construct by determining the number and nature of dimensions of brand personality (Sincerity, Excitement, Competence, Sophistication, and Ruggedness). Tc, measure the five brand personality dimensions, a reliable, valid, and generalizable measurement scale is created. Finally, theoretical and practical implications regarding the symbolic use of brands are discussed.
Two experiments were performed, involving a similar method. Experiment I showed for the first time that group discussion can produce a shift toward greater risk in choices among bets. A risky shift was found in two dimensions of risk taking: probability preferences and stake preferences. This finding made it possible to use bets in the second experiment. In Experiment II, no risky shift was found in a group decision where the members of the group had engaged in past discussions about other issues but were not permitted to discuss or exchange information about the current issue. This result casts doubt on the diffusion of responsibility theory about the risky shift.
Several studies have shown that, when group and individual decisions involving risk are compared, groups decide on the greater risk. This experiment examines the hypothesis that the norms relevant to group decisions favor the risky alternatives and help produce these results. Two experimental problems designed to induce norms which would produce no difference between individual and group decisions, two problems in which the norms were throught to favor more conservative group decisions, and three control items are presented to 22 groups, with procedures replicating previous studies. As predicted, the relationship between group and individual decisions varies with the manipulation; and group decisions are riskier than individual decisions only on the control items. Data are also presented which suggest that the most influential group members tend to personally support the normatively strongest position. The nature of the relevant norms must be taken into account to understand the relationship between group and individual decisions involving risk.
In this article, we summarize and review the research on teams and groups in organization settings published from January 1990 to April 1996. The article focuses on studies in which the dependent variables are concerned with various dimensions of effectiveness. A heuristic framework illustrating recent trends in the literature depicts team effectiveness as a function of task, group, and organization design factors, environmental factors, internal processes, external processes, and group psychosocial traits. The review discusses four types of teams: work, parallel, project, and management. We review research findings for each type of team organized by the categories in our heuristic framework. The article concludes by comparing the variables studied for the different types of teams, highlighting the progress that has been made, suggesting what still needs to be done, summarizing key leamings from the last six years, and suggesting areas for further research.
This article develops and applies new measures of portfolio performance which use benchmarks based on the characteristics of stocks held by the portfolios that are evaluated. Specifically, the benchmarks are constructed from the returns of 125 passive portfolios that are matched with stocks held in the evaluated portfolio on the basis of the market capitalization, book‐to‐market, and prior‐year return characteristics of those stocks. Based on these benchmarks, “Characteristic Timing” and “Characteristic Selectivity” measures are developed that detect, respectively, whether portfolio managers successfully time their portfolio weightings on these characteristics and whether managers can select stocks that outperform the average stock having the same characteristics. We apply these measures to a new database of mutual fund holdings covering over 2500 equity funds from 1975 to 1994. Our results show that mutual funds, particularly aggressive‐growth funds, exhibit some selectivity ability, but that funds exhibit no characteristic timing ability.
Evidence in support of the culture-value explanation of risky and cautious shifts is reported in this paper. By comparing a sample of Chinese from Taiwan and a sample of American subjects, the study finds the following: Chinese were more cautious than Americans in making solitary decisions; cautious shifts occurred among the Chinese when they made the decisions as a group; risky shifts occurred among the Americans. This difference in choice-shifts between the two samples could be attributed to the Confucian ethic, Chung Yung (or Doctrine of the Mean), of the Chinese. The paper also calls attention to the need of studying the relationship between cultures and types of decision in explaining risky and cautious shifts.
This article introduces the triadic model, which proposes that the social comparison of opinion is best considered in terms of 3 different evaluative questions: preference assessment (i.e., “Do I like X?”), belief assessment (i.e., “Is X correct?”), and preference prediction (i.e., “Will I like X?”). Each evaluative question is associated with a different comparison dynamic. The triadic model proposes that comparisons with persons similar in related attributes have special importance for preference assessment. For belief assessment, comparisons with persons of more advantaged status (or “expert”) are most meaningful, although comparison targets also should hold certain basic values in common (the “similar expert”). Finally, in preference prediction, the most meaningful comparisons are with a person who has already experienced X (a proxy) and who exhibits either consistency (but not necessarily similarity) in related attributes or past preferences. Prior research and 4 new studies are described that support the theory.
Experiments exploring the effects of group discussion on attitudes, jury decisions, ethical decisions, judgments, person perceptions, negotiations, and risk taking (other than the choice-dilemmas task) are generally consistent with a "group polarization" hypothesis, derived from the risky-shift literature. Recent attempts to explain the phenomenon fall mostly into 1 of 3 theoretical approaches: (a) group decision rules, especially majority rule (which is contradicted by available data); (b) interpersonal comparisons (for which there is mixed support); and (c) informational influence (for which there is strong support). A conceptual scheme is presented which integrates the latter 2 viewpoints and suggests how attitudes develop in a social context. (41/2 p ref)
The CRSP database is a fairly new publicly available database on mutual funds. It is comprehensive and is corrected for survivorship bias. It and the Morningstar database are likely to be the standard databases used by researchers in the future. Despite the care that has been exercised in compiling the CRSP database, it needs to be corrected for certain types of problems. The most obvious bias in the CRSP database is that it calculates fund returns for months with multiple distributions on the same day in a way that causes returns in those months to be overstated. This overstatement has an impact on overall returns and alphas which is of economic significance. The Morningstar database is free of this problem. We have shown that while CRSP does not suffer from survivorship bias, it does suffer from omission bias. Because only some small funds under $15 million in total net assets have monthly data on the CRSP database, and because the omitted funds have much greater merge and liquidation rates, we show that the returns reported for that group of funds which have monthly data overstate the population returns and alphas. We then examine the data CRSP provides on mergers. While these data are quite good in identifying mergers, we show that there are major problems in merger dates and reporting return data up to the time of the merger.
In this article, we summarize and review the research on teams and groups in organization settings published from January 1990 to April 1996. The article focuses on studies in which the dependent variables are concerned with various dimensions of effectiveness. A heuristic framework illustrating recent trends in the literature depicts team effectiveness as a function of task, group, and organization design factors, environmental factors, internal processes, external processes, and group psychosocial traits. The review discusses four types of teams: work, parallel, project, and management. We review research findings for each type of team organized by the categories in our heuristic framework. The article concludes by comparing the variables studied for the different types of teams, highlighting the progress that has been made, suggesting what still needs to be done, summarizing key learnings from the last six years, and suggesting areas for further research.
Self-categorization theory (Turner, 1985; Turner, Hogg, Oakes, Reicher, & Wetherell, 1987) explains group polarization as conformity to a polarized norem which defines one's own group in contrast to other groups within a specific social context. Whether the ingroup norm is polarized or not depends on the social comparative context within which the ingroup defines itself. It was predicted from self-categorization theory that an ingroup confronted by a risky outgroup will polarize toward caution, an ingroup confronted by a caution outgroup will polarize toward risk, and an ingroup in the middle of the social frame of reference, confronted by both risky and cautious outgroups, will not polarize but will converge on its pretest mean. Our experiment adopted a modified version of the risky-shift paradigm, in which subjects gave pretest, posttest, and group consensus recommendations on three choice dilemma item-types (risky, neutral, or risky). The frame of reference was manipulated by confronting the ingroup with an outgroup lying on one or the other side, or both sides, of the ingroup distribution. This procedure was successful in producing a polarized theoretical ingroup norm in the appropriate conditions. Subjects' posttest opinions converged on their estimations of the consensual ingroup position, which in turn was polarized or not in line with the theoretical norm. There was some evidence that the degree of behavioral convergence and estimations of the ingroup consensus were a partial function of the extent to which subjects identified the group. There was also the usual main effect for item-type: Subjects converged on a norm polarized toward risk on risky items and toward caution on catious items. The results are consistent with self-categorization theory.
The chapter explains the group-induced polarization of attitudes and behavior. The chapter highlights the concept of group polarization with four observations. First, remember that group polarization refers to a strengthening of the dominant tendency, not to increased cleavage and diversity within a group. Second, it denotes an exaggeration of the initial mean tendency derived from data averaged over groups (this includes between-subject designs where baseline choices made alone are compared with choices made by other people following group discussion of group decision.) Note, third, that the polarization hypothesis is a more precise prediction than group extremization, which denotes movement away from neutrality regardless of direction. Finally, group polarization can occur without individual group members becoming more polarized. This could easily happen if a sharply split group of people converged on a decision that was slightly more polar than their initial average. In addition, future study of group interaction seems, therefore, to have the potential of developing a creative synthesis between theory and its social usefulness, thus making this an area that fulfills Kurt Lewin's vision for social psychology.
Attempts to integrate the findings presented in 18 articles on the choice shift in group decision. Theoretical background, experimental results, and future research recommendations are discussed. (23 ref.). (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Confirms the hypothesis that the opinion of a group is more extreme than the average of the opinions of the individual members. 80 undergraduates were Ss. The experiment, which involved members of a group who were asked to describe their own membership group, also showed that when Ss were confronted with the presumed opinion of a rival group concerning their group, their individual and collective responses became even more polarized and tended to coincide more frequently with views expressed at the outset by extremists. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Made comparisons of opinion and judgment ratings of experimental Ss in individual and collective situations. 140 male secondary school students comprised the sample. Group discussions to consensus resulted in statistically significant shifts toward the extremes of the scales. This polarization effect also characterized Ss' postconsensus individual ratings. These results challenged 2 widely held assumptions: (1) that group judgments are less extreme than individual judgments, and (2) that the "risky shift" phenomenon is a content-bound exception to the averaging tendency of the group. A reinterpretation of available data suggests that a normative commitment may be the underlying variable responsible for polarization effects. (34 ref.) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
In commenting on D. Cartwright's (see record
1973-31210-001) article on "risky shift" research, the author suggests that the term "risky shift" is somewhat misleading and proposes the alternative "shift to increased risk" to reflect that it is the abstract process of reaching group consensus, which is not conceived in terms of risk or caution, that is most interesting. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
The hypothesis that the influence of an item of information on a group judgment is directly related to the number of group members who hold that information before group discussion was tested. Three-member groups read short descriptions of students and were asked to make individual and then group consensus judgments about those students' grades in the course. Information held by all members before group discussion had more influence on the group judgments than information held by only 1 member. However, no effect of information distribution was found when controlling for member judgments, suggesting that the impact of the information, and hence the effects of distribution across members, was mediated by its impact on individual-member prediscussion judgments. The group judgments were no more accurate than the average of the member judgments. Group members were not aware of the common knowledge effect's influence on their use of information. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Presented risk or caution-oriented choice dilemma items to 87 male undergraduates for discussion. During discussion, ss confronted an artificial group consensus either riskier or more cautious than their initial decision. R. Brown's cultural value explanation of the risky shift was not confirmed. A group consensus riskier than s's initial position produced a risky shift; likewise, a more conservative group consensus produced a cautious shift. A congruity between group consensus and item orientation did not produce larger shifts. Supplemental data, however, indicate (a) that during discussion ss were aware of the culturally valued level of risk, and (b) when they conformed in a "nonvalued" direction, they did so despite their desire to deviate in a culturally valued direction. Supplemental data support the cultural value explanation, while the risk-taking data suggest a limitation of that explanation's generality. (17 ref.) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Notes that shifts toward caution occur reliably in group discussions of certain issues and that the earlier notion that groups always take more risk than individuals must be abandoned. Discussion-induced shifts have recently been found on several non-risk-involving dimensions, suggesting a general phenomenon of choice shifts, rather than only shifts on the risk dimension. Quite a few theories have been developed to account for the choice shift. Theories that attribute choice shifts to the operation of widely held human values seem to have the most support, though truly definitive studies have not yet been done. 4 theories of this kind have received partial support, and there is a viable version of leadership theory which holds that the group shifts toward its most confident member. Evidence suggests that 2 or more mechanisms may be at work in group discussions and that more than 1 of the theories may be correct. (73 ref.) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
This study analyzes the risk-taking behavior of mutual funds in response to their rel-ative performance over the 1992 to 1999 period. Our results show that managers of funds whose performance is closer to that of the top performing funds have greater incentives to increase their portfolios' risk than managers at the top who exhibit a tendency to lock in their positions. The evidence suggests that termination risk imposes a constraint on the risk taking behavior of under-performing fund managers and the winner takes all phenomenon generates a strong incentive for the fund managers to be the top manager. We also analyze the difference in the risk taking behavior of funds managed by multiple managers and single managers.
I estimate a dynamic investment model for mutual managers to study the cross-sectional distribution of ability, incentives, and risk preferences. The manager's compensation depends on the size of the fund, which fluctuates due to fund returns and due to fund flows that respond to the fund's relative performance. The model provides an economic interpretation of time-varying coefficients in performance regressions in terms of the structural parameters. I document that the estimates of fund alphas are precise and virtually unbiased. I find substantial heterogeneity in ability, risk preferences, and pay-for-performance sensitivities that relates to observable fund characteristics.
In this paper I derive a risk-adjusted measure of portfolio performance (now known as Jensen's Alpha) that estimates how much a manager's forecasting ability contributes to the fund's returns. The measure is based on the theory of the pricing of capital assets by Sharpe (1964), Lintner (1965a) and Treynor (Undated). I apply the measure to estimate the predictive ability of 115 mutual fund managers in the period 1945-1964 - that is their ability to earn returns which are higher than those we would expect given the level of risk of each of the portfolios. The foundations of the model and the properties of the performance measure suggested here are discussed in Section II. The evidence on mutual fund performance indicates not only that these 115 mutual funds were on average not able to predict security prices well enough to outperform a buy-the-market-and-hold policy, but also that there is very little evidence that any individual fund was able to do significantly better than that which we expected from mere random chance. It is also important to note that these conclusions hold even when we measure the fund returns gross of management expenses (that is assume their bookkeeping, research, and other expenses except brokerage commissions were obtained free). Thus on average the funds apparently were not quite successful enough in their trading activities to recoup even their brokerage expenses.
Existing studies of mutual fund market timing analyze monthly returns and find little evidence of timing ability. We show that daily tests are more powerful and that mutual funds exhibit significant timing ability more often in daily tests than in monthly tests. We construct a set of synthetic fund returns in order to control for spurious results. The daily timing coefficients of the majority of funds are significantly different from their synthetic counterparts. These results suggest that mutual funds may possess more timing ability than previously documented.
Recent studies find that mutual funds exhibit differential and persistent performance which is frequently attributed to superior managerial decision making. We extend the literature by examining the impact of the fund’s management structure on performance outcomes. Specifically, we examine directly whether superior outcomes, in terms of risk-adjusted returns, may be explained by behavioral decision making theory that asserts that teams make better decisions than individuals. Empirical results are consistent with the classical decision making theory and the efficient market hypothesis.
We study the choice between named and anonymous mutual fund managers. We argue that fund families weigh the benefits of naming managers against the cost associated with their increased future bargaining power. Named managers receive more media mentions, have greater inflows, and suffer less return diversion due to within family cross-subsidization, but departures of named managers reduce net flows. Naming managers became less common between 1993 and 2004. This was especially true in the asset classes and cities most affected by the hedge fund boom, which increased outside opportunities for, and the cost of retaining, successful named managers.
This paper identifies five common risk factors in the returns on stocks and bonds. There are three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity. There are two bond-market factors, related to maturity and default risks. Stock returns have shared variation due to the stock-market factors, and they are linked to bond returns through shared variation in the bond-market factors. Except for low-grade corporates, the bond-market factors capture the common variation in bond returns. Most important, the five factors seem to explain average returns on stocks and bonds.
Several of our studies indicate that persuasive-arguments theory by itself is an adequate explanation of polarization. Sanders and Baron (Journal of Experimental Social Psychology 1977, 13, 303–314) criticize this research. More generally, they contend that both argumentation and comparison are involved, “with persuasive arguments facilitating the shifts motivated by social comparison.” We feel that their critique is unconvincing. Relevant portions of the standard literature are reviewed to demonstrate that social comparison is neither a necessary nor sufficient condition for polarization. Finally, we speculate about how persuasive-arguments theory could be extended to argument-poor settings (e.g., Asch's line comparison situation).
An extensive series of studies has shown that group decisions on life-situation items involving a risky dimension are significantly different from the average of the initial individual decisions of the members of the group. The present study investigates the possibility that widely held values and individuals' perceptions of their own riskiness relative to “other people like them” are important factors in individual and group decisions on life-situation items. Initial individual decisions on the items are found to be consistent with widely held values as assessed on a separate instrument. Significant differences between individuals' perceptions of their own and others' riskiness are also found. The life-situation items were divided into two types of items, on the bases of widely held values and the subjects' perceptions of their own relative riskiness. For items on which the widely held values favored the risky alternative and on which subjects considered themselves relatively risky, unanimous group decisions were more risky than the average of the initial individual decisons. The group decisions tended to be more cautious on items for which widely held values favored the cautious alternative and on which subjects considered themselves relatively cautious. The results are interpreted as supporting both the Nordhøy-Marquis general values hypothesis and the Brown “value to being relatively risky or relatively cautious” hypothesis.
We examine the influence on managerial risk taking of incentives due to employment risk and due to compensation. Our empirical investigation of the risk taking behavior of mutual fund managers indicates that managerial risk taking crucially depends on the relative importance of these incentives. When employment risk is more important than compensation incentives, fund managers with a poor midyear performance tend to decrease risk relative to leading managers to prevent potential job loss. When employment risk is low, compensation incentives become more relevant and fund managers with a poor midyear performance increase risk to catch up with the midyear winners.
What situational elements can account for the enhanced risk taking typical of group relative to individual decision making? The three elements investigated were provision of information about the risk-taking levels favored by peers, with the implication of judgmental comparison; group discussion, with the affective involvement it can generate; and achievement of consensus, with its possible centering of commitment upon the group. The Ss were 360 undergraduates, 180 of each sex, randomly assigned within sex to one of three experimental conditions, all involving five-person groups. The group members in the respective conditions reached decisions concerning matters of risk through discussion to a consensus, through achievement of consensus without discussion, or through discussion without the requirement of consensus. For both male and female groups, discussion with or without consensus produced substantial shifts toward greater risk taking, while consensus without discussion yielded an averaging effect. Hence, the occurrence of group discussion is both necessary and sufficient for generating the risky shift effect.
In a partial replication of an earlier study by Wallach and Kogan, group risk taking was examined under conditions of discussion and information exchange. Group size was also manipulated. Unlike the earlier findings, a risky shift occurred in the information exchange condition, where the subjects only revealed to one another the contents of their prior decisions. A stronger risky shift was found when discussion was permitted. Risky shift was more pronounced the larger the size of the group. The extent of risky shift on a decision problem was found to be positively related to the initial level of risk on that problem. The results appear to support Brown's “value of risk” theory of group risk taking more closely than any other theory.
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We use a large sample of guessed ice break-up dates for the Tanana River in Alaska to study differences between outcomes of
decisions made by individuals versus groups. We estimate the distribution of guesses conditional on whether they were made
by individual bettors or betting pools. We document two major distinctions between the two sets of guesses: (1) the distribution
of guesses made by groups of bettors appears to conform more to the distribution of historical break-up dates than the distribution
of guesses made by individual bettors, and (2) the distribution for groups has less mass in its tails and displays lower variability
than the distribution for individuals. We argue that these two pieces of evidence are consistent with the hypothesis that
group decisions are more moderate, either because groups have to reach a compromise when their members disagree or because
individuals with extreme opinions are less likely to be part of a group.
We introduce a new measure of active portfolio management, Active Share, which represents the share of portfolio holdings that differ from the benchmark index holdings. We compute Active Share for domestic equity mutual funds from 1980 to 2003. We relate Active Share to fund characteristics such as size, expenses, and turnover in the cross-section, and we also examine its evolution over time. Active Share predicts fund performance: funds with the highest Active Share significantly outperform their benchmarks, both before and after expenses, and they exhibit strong performance persistence. Nonindex funds with the lowest Active Share underperform their benchmarks. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.