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The effect of management team characteristics on risk-taking and style extremity of mutual fund portfolios

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  • Karagiannidis, Iordanis
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    Abstract

    This paper investigates the effect of management team-level characteristics on portfolio risk and style extremity using a unique dataset of 1678 mutual fund managers. Results show that teams with more members, longer tenure, and more members with graduate business training hold less risky portfolios. The opposite is true for teams whose members engage in side-by-side management; that is, they manage multiple funds simultaneously. Member diversity is related to less extreme style decisions. These findings have important implications for fund management companies as they make decisions about the composition of management teams as well as for individual investors’ investment allocation decisions.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1058330012000389
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    Bibliographic Info

    Article provided by Elsevier in its journal Review of Financial Economics.

    Volume (Year): 21 (2012)
    Issue (Month): 3 ()
    Pages: 153-158

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    Handle: RePEc:eee:revfin:v:21:y:2012:i:3:p:153-158

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    Web page: http://www.elsevier.com/locate/inca/620170

    Related research

    Keywords: Mutual fund; Team-manager; Portfolio risk;

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    1. Sharpe, W F, 1981. "Decentralized Investment Management," Journal of Finance, American Finance Association, vol. 36(2), pages 217-34, May.
    2. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    3. Joseph Chen & Harrison Hong & Ming Huang & Jeffrey D. Kubik, 2004. "Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization," American Economic Review, American Economic Association, vol. 94(5), pages 1276-1302, December.
    4. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    5. Prather, Larry J. & Middleton, Karen L., 2002. "Are N+1 heads better than one?: The case of mutual fund managers," Journal of Economic Behavior & Organization, Elsevier, vol. 47(1), pages 103-120, January.
    6. Karagiannidis, Iordanis, 2010. "Management team structure and mutual fund performance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(2), pages 197-211, April.
    7. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
    8. Tom Nohel & Z. Jay Wang & Lu Zheng, 2010. "Side-by-Side Management of Hedge Funds and Mutual Funds," Review of Financial Studies, Society for Financial Studies, vol. 23(6), pages 2342-2373, June.
    9. Barry, Christopher B & Starks, Laura T, 1984. " Investment Management and Risk Sharing with Multiple Managers," Journal of Finance, American Finance Association, vol. 39(2), pages 477-91, June.
    10. Bär, Michaela & Niessen, Alexandra & Ruenzi, Stefan, 2007. "The impact of work group diversity on performance: Large sample evidence from the mutual fund industry," CFR Working Papers 07-16, University of Cologne, Centre for Financial Research (CFR).
    11. Gottesman, Aron A. & Morey, Matthew R., 2006. "Manager education and mutual fund performance," Journal of Empirical Finance, Elsevier, vol. 13(2), pages 145-182, March.
    12. Golec, Joseph H., 1996. "The effects of mutual fund managers' characteristics on their portfolio performance, risk and fees," Financial Services Review, Elsevier, vol. 5(2), pages 133-147.
    13. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, 05.
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