Managerial Sharing, Mutual Fund Connections, and Performance

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 s...

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Bibliographic Details
Published inInternational review of finance Vol. 15; no. 3; pp. 427 - 455
Main Authors Augustiani, Cathline, Casavecchia, Lorenzo, Gray, Jack
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.09.2015
Subjects
Economic theory
G11
G12
G23
Mutual funds
Portfolio management
Return on investment
Securities analysis
Studies
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Summary: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.
Bibliography:istex:FA31247E535290375EB3C0749E86D8AFF2A82AAC
Finance Discipline Group and the Quantitative Finance Research Centre
ArticleID:IRFI12054
We would like to thank Adrian Lee, Marco Navone, Nahid Rahman, Susan Thorp, and two anonymous reviewers for helpful comments. Casavecchia gratefully acknowledges the financial support received from the Finance Discipline Group and the Quantitative Finance Research Centre at the University of Technology Sydney. We acknowledge the technical support provided by Analytic Technologies and the UTS FEIT High-Performance Parallel Computing Linux Clusters for the use of their supercomputers. The opinion and analysis presented herein are those of the authors and do not represent the views of GMO.
ark:/67375/WNG-ZBCPT936-Q
ISSN:1369-412X
1468-2443
DOI:10.1111/irfi.12054