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The Impact of Experience on Risk Taking, Overconfidence, and Herding of Fund Managers: Complementary Survey Evidence

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Brozynski, Torsten
Menkhoff, Lukas
Schmidt, Ulrich

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Abstract

Empirical research has shown that inexperienced fund managers yield significantly higher returns than their more experienced colleagues. If the portfolios of inexperienced are not more risky, this result would contradict the hypothesis of market efficiency. Therefore, it is an important question whether inexperienced fund managers tend to taker higher risks. Higher risk taking may be explained by a higher degree of overconfidence, less herding behavior, or a lower degree of risk aversion. Since the results concerning the relationship between experience and risk taking in previous studies are rather contradictory we analyze whether complementary survey evidence can improve our understanding in this field. In line with the results of previous studies, we find that herding is decreasing with experience while the evidence concerning risk taking and overconfidence is mixed. We will argue that this mixed evidence may be likely due to the heterogeneity in the employed definitions of risk taking and overconfidence.

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Paper provided by Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover with number dp-292.

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Length: 14 pages
Date of creation: Jan 2004
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Handle: RePEc:han:dpaper:dp-292

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Related research
Keywords: overconfidence; herding; funds manager;

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Find related papers by JEL classification:
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luís Santos-Pinto, 2006. "Positive Self-Image over Time," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 09.02, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
    Other versions:
  2. Santos-Pinto, Luís, 2003. "Positive self-image and incentives in organizations," MPRA Paper 3141, University Library of Munich, Germany, revised 14 Feb 2007. [Downloadable!]
    Other versions:
  3. Gloede, Oliver & Menkhoff, Lukas, 2009. "Financial professionals' overconfidence: Is it experience, job, or attitude?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-428, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  4. Gehrig, Thomas P. & Lütje, Torben & Menkhoff, Lukas, 2008. "Bonus Payments and Fund Managers' Behavior: Trans-Atlantic Evidence," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-411, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
    Other versions:
  5. Giuseppe Attanasi, Luca Corazzini, Nikolaos Georgantzis, Francesco Passarelli., 2009. "Risk Aversion, Over-Confidence and Private Information as Determinants of Majority Thresholds," ISLA Working Papers 34, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy. [Downloadable!]
  6. Beckmann, Daniela & Menkhoff, Lukas, 2008. "Will Women Be Women? Analyzing the Gender Difference among Financial Experts," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-391, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
    Other versions:
  7. Menkhoff, Lukas & Nikiforow, Marina, 2008. "Professionals' endorsement of behavioral finance: Does it impact their perception of markets and themselves?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-392, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
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  8. Nikiforow, Marina, 2009. "Does training on behavioral finance influence fund managers' perception and behavior?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-419, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  9. Santos-Pinto, Luís, 2003. "Positive self-image in tournaments," MPRA Paper 3140, University Library of Munich, Germany, revised 27 Feb 2007. [Downloadable!]
  10. Benoît, Jean-Pierre & Dubra, Juan, 2007. "Overconfidence?," MPRA Paper 5505, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  11. Nosic, Alen & Weber, Martin, 2007. "Determinants of Risk Taking Behavior: The role of Risk Attitudes, Risk Perceptions and Beliefs," Sonderforschungsbereich 504 Publications 07-56, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
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  13. Hagerman, Amy & Jin, Yanhong, 2009. "The Buzz In The Pits: Livestock Futures' Response To A Rumor Of Foreign Animal Disease," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49493, Agricultural and Applied Economics Association. [Downloadable!]
  14. Menkhoff, Lukas & Schmeling, Maik & Schmidt, Ulrich, 2008. "Are all professional investors sophisticated?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-397, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  15. Beckmann, Daniela & Menkhoff, Lukas & Suto, Megumi, 2007. "Does Culture Influence Asset Managers? Views and Behavior?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-367, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
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