Overconfidence Among Professional Investors: Evidence from Mutual Fund Managers

Alexander Puetz · Stefan Ruenzi

107 citations0/0 files storedJournal of Business Finance &amp Accounting

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Financial Markets and Investment Strategies Corporate Finance and Governance Decision-Making and Behavioral Economics

Abstract

Abstract: We examine overconfidence among equity mutual fund managers. While overconfidence has been extensively documented among retail investors, evidence from professional investors is scarce. Consistent with theories of overconfidence, we find that fund managers trade more after good past performance. The higher trading activity after good performance is driven by individual portfolio performance, while the market performance has no significant impact. We rule out some alternative explanations for our results like increased trading as a response to tournament incentives, as a response to inflows, or as a rational reaction due to managerial learning about abilities.

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References

1993Common risk factors in the returns on stocks and bonds 1997On Persistence in Mutual Fund Performance 1973Risk, Return, and Equilibrium: Empirical Tests 2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 1998Investor Psychology and Security Market Under‐ and Overreactions 1995The Limits of Arbitrage 1968THE PERFORMANCE OF MUTUAL FUNDS IN THE PERIOD 1945–1964 n.d.A model of investor sentiment /

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