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Fund manager conviction and investment performance
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Jin, Liang, Taffler, Richard J., Eshraghi, Arman and Tosun, Onur Kemal (2020) Fund manager conviction and investment performance. International Review of Financial Analysis, 71 . 101550. doi:10.1016/j.irfa.2020.101550 ISSN 1057-5219.
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Official URL: http://dx.doi.org/10.1016/j.irfa.2020.101550
Abstract
This paper examines the role conviction plays in asset management and its relationship with investment returns. We measure the strength of fund manager conviction through a fund's Active Share, i.e., the extent to which an investment portfolio differs from its benchmark index. First, we show fund manager conviction increases following both superior and, surprisingly, inferior past performance, and more so among solo-managed than team-managed funds. Second, and more importantly, we find an inverse-U relationship between conviction and subsequent performance. High levels of conviction proxied by high Active Share are associated with lower future returns and greater fund risk. Our study also illustrates an asymmetric investor reaction to fund manager conviction in the form of higher (lower) fund inflows rewarding good performance by high (low) conviction managers, but no pronounced penalties for poor performance, ceteris paribus.
Item Type: | Journal Article | ||||||||
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Subjects: | B Philosophy. Psychology. Religion > BF Psychology H Social Sciences > HG Finance |
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Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
Library of Congress Subject Headings (LCSH): | Investment advisors -- Decision making, Investments -- Decision making, Finance -- Decision making, Asset management accounts, Institutional investors, Financial instruments, Conviction, Uncertainty | ||||||||
Journal or Publication Title: | International Review of Financial Analysis | ||||||||
Publisher: | Elsevier BV | ||||||||
ISSN: | 1057-5219 | ||||||||
Official Date: | October 2020 | ||||||||
Dates: |
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Volume: | 71 | ||||||||
Article Number: | 101550 | ||||||||
DOI: | 10.1016/j.irfa.2020.101550 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Open Access (Creative Commons) | ||||||||
Date of first compliant deposit: | 6 January 2023 | ||||||||
Date of first compliant Open Access: | 9 January 2023 |
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