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Managerial Sharing, Mutual Fund Connections, and Performance
Author(s) -
Augustiani Cathline,
Casavecchia Lorenzo,
Gray Jack
Publication year - 2015
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12054
Subject(s) - mutual fund , optimal distinctiveness theory , income fund , closed end fund , target date fund , business , portfolio , fund of funds , manager of managers fund , open end fund , fund administration , finance , institutional investor , corporate governance , psychology , market liquidity , psychotherapist
In this study, we examine the effect of mutual fund connections, through managerial sharing, on performance and stock holding commonalities. Our analysis of return correlations and portfolio holdings indicates that more interconnected funds tend to buy and sell similar stocks, hence increasing the similarity of portfolio holdings and undermining the distinctiveness of their investment strategy. Our results also indicate that highly connected funds significantly underperform weakly connected funds by about 1.4% on a yearly risk‐adjusted basis. We show that fund family performance is unaffected by the intensity of fund connections, and that greater fund connections could significantly enhance family‐level profit margins.