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Managerial investment in mutual funds: Determinants and performance implications

Listed author(s):
  • Abigail S. Hornstein

    ()

    (Department of Economics, Wesleyan University)

  • James Hounsell

    (Centerstone Investors, New York)

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.

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File URL: http://dx.doi.org/10.1016/j.jeconbus.2016.05.002
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Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2016-004.

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Length: 17 pages
Date of creation: Jun 2016
Publication status: Published Journal of Economics and Business 87 (2016) 18–34
Handle: RePEc:wes:weswpa:2016-004
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Web page: http://www.wesleyan.edu/econ/

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