To Group or Not to Group? Evidence from Mutual Funds
AbstractThe literature has conflicting reports regarding the impact of group decision making on performance. We first observe that in mutual fund studies this results from large discrepancies in reported managerial structures between CRSP and Morningstar databases reaching on average 20% per year. Then we show that with more superior Morningstar data team-managed funds exhibit higher risk-adjusted returns than single-managed funds. The performance spread is present across all fund categories, except aggressive funds, and is robust to the inclusion of fund- and manager-level controls. Across various managerial structures, the largest team-induced gains are reached among funds managed by three individuals. Furthermore, teams significantly improve fund performance when funds are located in financial centers, reflecting larger networking potential and/or better skills of people who reside in larger cities. This improvement is achieved in teams more homogeneous in age and education. In spite of higher returns however, team-managed funds are not riskier than single-managed funds in terms of market exposure or idiosyncratic volatility. Finally, team-managed funds trade less aggressively and are able to generate extra inflows for their funds. Thus, collective decision making is beneficial, but its scale depends on team size and diversity as well as its geographic location.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 38496.
Date of creation: 20 Apr 2012
Date of revision:
Knowledge spillover; Management structure; Performance evaluation; Team diversity;
Find related papers by JEL classification:
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-08 (All new papers)
- NEP-FMK-2012-05-08 (Financial Markets)
- NEP-HRM-2012-05-08 (Human Capital & Human Resource Management)
- NEP-SOC-2012-05-08 (Social Norms & Social Capital)
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.:
- Alexander Kempf & Stefan Ruenzi, 2004.
"Tournaments in Mutual Fund Families,"
- Sah, Raaj Kumar & Stiglitz, Joseph E, 1986.
"The Architecture of Economic Systems: Hierarchies and Polyarchies,"
American Economic Review,
American Economic Association, vol. 76(4), pages 716-27, September.
- Raaj Kumar Sah & Joseph E. Stiglitz, 1987. "The Architecture of Economic Systems: Hierarchies and Polyarchies," NBER Working Papers 1334, National Bureau of Economic Research, Inc.
- Christoffersen, Susan E.K. & Sarkissian, Sergei, 2009. "City size and fund performance," Journal of Financial Economics, Elsevier, vol. 92(2), pages 252-275, May.
- Elton, Edwin J, et al, 1993. "Efficiency with Costly Information: A Reinterpretation of Evidence from Managed Portfolios," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 1-22.
- Massa, Massimo & Reuter, Jonathan & Zitzewitz, Eric, 2010. "When should firms share credit with employees? Evidence from anonymously managed mutual funds," Journal of Financial Economics, Elsevier, vol. 95(3), pages 400-424, March.
- Glaeser, Edward L., 1999.
"Learning in Cities,"
Journal of Urban Economics,
Elsevier, vol. 46(2), pages 254-277, September.
- Edward L. Glaeser, 1997. "Learning in Cities," Harvard Institute of Economic Research Working Papers 1814, Harvard - Institute of Economic Research.
- Edward Glaeser, 1997. "Learning in Cities," NBER Working Papers 6271, National Bureau of Economic Research, Inc.
- Nalbantian, Haig & Schotter, Andrew, 1994.
"Productivity Under Group Incentives: An Experimental Study,"
94-04, C.V. Starr Center for Applied Economics, New York University.
- Nalbantian, Haig R & Schotter, Andrew, 1997. "Productivity under Group Incentives: An Experimental Study," American Economic Review, American Economic Association, vol. 87(3), pages 314-41, June.
- Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
- Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 789-811, October.
- Brad M. Barber & Chip Heath & Terrance Odean, 2003. "Good Reasons Sell: Reason-Based Choice Among Group and Individual Investors in the Stock Market," Management Science, INFORMS, vol. 49(12), pages 1636-1652, December.
- 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.
- Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
- Sah, Raaj K & Stiglitz, Joseph E, 1991. "The Quality of Managers in Centralized versus Decentralized Organizations," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 289-95, February.
- Bone, John & Hey, John & Suckling, John, 1999. "Are Groups More (or Less) Consistent Than Individuals?," Journal of Risk and Uncertainty, Springer, vol. 18(1), pages 63-81, April.
- David J. Cooper & John H. Kagel, 2005. "Are Two Heads Better Than One? Team versus Individual Play in Signaling Games," American Economic Review, American Economic Association, vol. 95(3), pages 477-509, June.
- Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-61, June.
- 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.
- Armen A. Alchian & Harold Demsetz, 1971.
"Production, Information Costs and Economic Organizations,"
UCLA Economics Working Papers
10A, UCLA Department of Economics.
- Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
- Edwin J. Elton, 2001. "A First Look at the Accuracy of the CRSP Mutual Fund Database and a Comparison of the CRSP and Morningstar Mutual Fund Databases," Journal of Finance, American Finance Association, vol. 56(6), pages 2415-2430, December.
- Attila Ambrus & Ben Greiner & Parag Pathak, 2009. "Group Versus Individual Decision-Making: Is there a shift?," Economics Working Papers 0091, Institute for Advanced Study, School of Social Science.
- Jeremy C. Stein, 2002. "Information Production and Capital Allocation: Decentralized versus Hierarchical Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1891-1921, October.
- Grubb, David & Symons, James, 1987. "Bias in Regressions With a Lagged Dependent Variable," Econometric Theory, Cambridge University Press, vol. 3(03), pages 371-386, June.
- 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.
- Joshua D. Coval & Tobias J. Moskowitz, 2001. "The Geography of Investment: Informed Trading and Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 811-841, August.
- 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.
- Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
- Sharpe, W F, 1981. "Decentralized Investment Management," Journal of Finance, American Finance Association, vol. 36(2), pages 217-34, May.
- Prachi Deuskar, 2011. "The Good or the Bad? Which Mutual Fund Managers Join Hedge Funds?," Review of Financial Studies, Society for Financial Studies, vol. 24(9), pages 3008-3024.
- Maddala, G S & Rao, A S, 1973. "Tests for Serial Correlation in Regression Models with Lagged Dependent Variables and Serially Correlated Errors," Econometrica, Econometric Society, vol. 41(4), pages 761-74, July.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.