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Managerial investment in mutual funds: Determinants and performance implications

Author

Listed:
  • Abigail S. Hornstein

    (Department of Economics, Wesleyan University)

  • James Hounsell

    (Centerstone Investors, New York)

Abstract

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 thatinvestment levels fluctuate within funds over time, contrary to the common assumptionthat cross-sectional data are representative. Managerial investments reflect personal portfolio considerations while also signaling incentive alignment with investors. The impactof 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-managedfunds when managers invest more. These results are consistent with the higher visibility ofsolo managers, and less extreme investment returns of team-managed funds. Our resultssuggest investors may not benefit from all managerial signals of incentive alignment asmanagerial investments also reflect personal portfolio considerations.

Suggested Citation

  • Abigail S. Hornstein & James Hounsell, 2016. "Managerial investment in mutual funds: Determinants and performance implications," Wesleyan Economics Working Papers 2016-004, Wesleyan University, Department of Economics.
    • Handle: RePEc:wes:weswpa:2016-004
    DOI: 10.1016/j.jeconbus.2016.05.002
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    Cited by:

    1. H. Pierre Hsieh & Imen Tebourbi & Wen‐Min Lu & Nai‐Yu Liu, 2020. "Mutual fund performance: The decision quality and capital magnet efficiencies," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 861-872, July.
    2. Ibert, Markus, 2023. "What do mutual fund managers’ private portfolios tell us about their skills?," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    3. Hafinaz Hasniyanti Hassan, 2018. "Conceptual Framework for the Determinants of Mutual Fund Performance in Malaysia," GATR Journals jfbr146, Global Academy of Training and Research (GATR) Enterprise.
    4. Leonardo Badea & Daniel Ştefan Armeanu & Iulian Panait & Ştefan Cristian Gherghina, 2019. "A Markov Regime Switching Approach towards Assessing Resilience of Romanian Collective Investment Undertakings," Sustainability, MDPI, vol. 11(5), pages 1-24, March.
    5. Amaral, Fatima & Reis, Pedro & Pinto, Pedro, 2019. "Evaluating investment fund performance in Portugal," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 15(2).
    6. Pi‐Hsia Hung & Donald Lien & Yun‐Ju Chien, 2020. "Portfolio concentration and fund manager performance," Review of Financial Economics, John Wiley & Sons, vol. 38(3), pages 423-451, July.
    7. Hung, Pi-Hsia & Lien, Donald & Kuo, Ming-Sin, 2020. "Window dressing in equity mutual funds," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 338-354.

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    JEL classification:

    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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