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Is a team different from the sum of its parts? Evidence from mutual fund managers

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  • Bär, Michaela
  • Kempf, Alexander
  • Ruenzi, Stefan

Abstract

This paper provides the first empirical test of the diversification of opinions theory and the group shift theory using real business data. Our data set covers management teams and single managers of US equity mutual funds. Our results reject the group shift theory and support the diversification of opinions theory: extreme opinions of single team managers average out and, consequently, teams make less extreme decisions than individuals do. We find that teams follow less extreme investment styles and their portfolios are less industry concentrated than those of single managers and that teams are eventually less likely to achieve extreme performance outcomes. These results hold after taking into account the impact of fund and family characteristics as well as manager characteristics. Additionally, teams exhibit a lower active share and lower risk levels, driven by a lower level of idiosyncratic risk, as compared to singlemanaged funds.

Suggested Citation

  • Bär, Michaela & Kempf, Alexander & Ruenzi, Stefan, 2005. "Is a team different from the sum of its parts? Evidence from mutual fund managers," CFR Working Papers 05-10, University of Cologne, Centre for Financial Research (CFR).
    • Handle: RePEc:zbw:cfrwps:0510
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    Cited by:

    1. Lambrecht, Bart & Chen, Shiqi, 2019. "Financial Policies and Internal Governance with Heterogeneous Risk Preferences," CEPR Discussion Papers 13888, C.E.P.R. Discussion Papers.
    2. Dass, Nishant & Nanda, Vikram & Wang, Qinghai, 2013. "Allocation of decision rights and the investment strategy of mutual funds," Journal of Financial Economics, Elsevier, vol. 110(1), pages 254-277.
    3. Garlappi, Lorenzo & Giammarino, Ron & Lazrak, Ali, 2017. "Ambiguity and the corporation: Group disagreement and underinvestment," Journal of Financial Economics, Elsevier, vol. 125(3), pages 417-433.
    4. Huang, Ying Sophie & Liang, Bing & Wu, Kai, 2021. "Are mutual fund manager skills transferable to private funds?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 614-638.

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    More about this item

    Keywords

    Mutual Funds; Team Management; Investment Behavior;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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