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Investment Behaviour of German Equity Fund Managers - An Exploratory Analysis of Survey Data

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  • Arnswald, Torsten

Abstract

In order to shed light on the "black box" of institutional equity investing in a systematic manner, I conducted a broadly based questionnaire which received a large response from German mutual fund companies. The survey asked fund managers for their basic views and practices and for insights into their company's performance-measurement and compensation incentives. It was possible to identify three core types of investors, labelled fundamentalists, tacticians and methodologists, in the data on investment behaviour. Common to all types is the primary aim of achieving above-average returns on investment with due allowance being made for sluggishness in the reaction of market prices to new information. Another universal feature of institutional equity investing turns out to be a heavy reliance on information sources which offer a means of confirmation and through which the contagions of fear and exuberance may be transmitted. In general fund managers exhibit a pronounced preference for "winner-type" and "spotlight" stocks as well. All investor groups recognise, in the first instance, underlying economic information as a source of superior value. However, a potential for exaggerated market dynamics is suggested by the fact that the mere arrival of news from corporations or analysts' earnings revisions is generally thought to impart as strong a market impulse as the perceived mispricing of stocks relative to the market or sector as such. Furthermore, those who appear to be best suited to conduct fundamental arbitrage are nevertheless likely to be constrained, to a significant extent, by time horizons and the fear of market movements. Besides investment focus and basic attitudes towards market efficiency, agency problems are shown to have a bearing on equity fund managers' investment behaviour.

Suggested Citation

  • Arnswald, Torsten, 2001. "Investment Behaviour of German Equity Fund Managers - An Exploratory Analysis of Survey Data," Discussion Paper Series 1: Economic Studies 2001,08, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:4154
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    Cited by:

    1. Marina Nikiforow, 2010. "Does training on behavioural finance influence fund managers' perception and behaviour?," Applied Financial Economics, Taylor & Francis Journals, vol. 20(7), pages 515-528.
    2. Thomas Gehrig & Lukas Menkhoff, 2005. "The Rise of Fund Managers in Foreign Exchange:Will Fundamentals Ultimately Dominate?," The World Economy, Wiley Blackwell, vol. 28(4), pages 519-540, April.
    3. Lütje, Torben, 2004. "To Be Good or To Be Better: Asset Managers Attitudes Towards Herding," Hannover Economic Papers (HEP) dp-297, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    4. Bauer, Christian & Herz, Bernhard, 2005. "Technical trading, monetary policy, and exchange rate regimes," Global Finance Journal, Elsevier, vol. 15(3), pages 281-302, February.
    5. Bank for International Settlements, 2003. "Incentive structures in institutional asset management and their implications for financial markets," CGFS Papers, Bank for International Settlements, number 21.
    6. Valentyn Panchenko & Sergiy Gerasymchuk & Oleg V. Pavlov, 2007. "Asset price dynamics with small world interactions under hetereogeneous beliefs," Working Papers 149, Department of Applied Mathematics, Università Ca' Foscari Venezia.
    7. Thomas P. Gehrig & Torben Lütje & Lukas Menkhoff, 2009. "Bonus Payments and Fund Managers' Behavior: Transatlantic Evidence," CESifo Economic Studies, CESifo, vol. 55(3-4), pages 569-594.
    8. Torben Lutje, 2009. "To be good or to be better: asset managers' attitudes towards herding," Applied Financial Economics, Taylor & Francis Journals, vol. 19(10), pages 825-839.
    9. Werner, Thomas & Stapf, Jelena, 2003. "How wacky is the DAX? The changing structure of German stock market volatility," Discussion Paper Series 1: Economic Studies 2003,18, Deutsche Bundesbank.
    10. Menkhoff, Lukas & Schmidt, Ulrich & Brozynski, Torsten, 2006. "The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence," European Economic Review, Elsevier, vol. 50(7), pages 1753-1766, October.
    11. Brozynski, Torsten & Menkhoff, Lukas & Schmidt, Ulrich, 2003. "The Use of Momentum, Contrarian and Buy-&-Hold Strategies: Survey Evidence from Fund Managers," Hannover Economic Papers (HEP) dp-290, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    12. Lukas Menkhoff & Ulrich Schmidt, 2005. "The use of trading strategies by fund managers: some first survey evidence," Applied Economics, Taylor & Francis Journals, vol. 37(15), pages 1719-1730.
    13. Éric Jondeau, 2004. "Gestion institutionnelle et volatilité des marchés financiers," Revue d'Économie Financière, Programme National Persée, vol. 74(1), pages 157-175.
    14. Torben Lütje & Lukas Menkhoff, 2007. "What drives home bias? Evidence from fund managers' views," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(1), pages 21-35.

    More about this item

    Keywords

    Institutional investors? behaviour; mutual funds; equity markets; financial system stability;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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