Associate Professor of Economics Abigail Hornstein and James Hounsell ’11 are the authors of a new paper published in The Journal of Economics and Business titled “Managerial investment in mutual funds: Determinants and performance implications.”
In the paper, Hornstein and Hounsell examine what determines managerial investments in mutual funds, and the impacts of these investments on fund performance. By using panel data they show that investment levels fluctuate within funds over time, contrary to the common assumption that cross-sectional data are representative. Managerial investments reflect personal portfolio considerations while also signaling incentive alignment with investors. The impact of 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-managed funds when managers invest more. These results are consistent with the higher visibility of solo managers, and less extreme investment returns of team-managed funds. The results suggest investors may not benefit from all managerial signals of incentive alignment as managerial investments also reflect personal portfolio considerations.
Read the full paper here.