The aim of this study is to identify differences in investment behavior - and in particular the special case of a team's decision-making process - as well as possible performance indicators. The research results to be presented should be used as guidance in selecting an appropriate management structure for the mutual fund industry. Before addressing the differing investment behaviors of the two management structures, the special dynamics that can operate within a team in decision making have to be examined. For this said purpose, the relevant literature provides some conflicting theories on decision making.
When looking at the proportion of team-managed and single-managed mutual funds, it is observed that team funds have increased at the cost of single-managed funds. Thus, from 1992 to 2015, within all mutual funds, team-managed funds increased from 12% to 57%, while single-managed funds decreased from 88% to 43%. A similar development can be seen in the change of the management structure of a fund in Figure 1: A total of 553 mutual funds, which were previously managed individually, switched to a team fund, whereas only 317 funds changed from a team-managed fund to an single-managed fund.
A crossover in the proportion of teams after the global financial crisis in 2008, in times when risk reduction by diversification began to gain in importance, is clearly observable. Thus, it should be in the interest of mutual funds to possess sufficient management diversity to reach an adequate niveau of diversification. As argued by Tom Stevenson, the investment director of Fidelity International, besides gender diversity, diversity in cognition, education and mindset represent a great strength. Research on the mutual fund industry indicates some differences in the investment behavior between team-managed and single-managed mutual funds. Especially concerning teams, different theories of decision making can be found, resulting in different investment styles and performance levels.
Table of Contents
1 Introduction
2 Theory
2.1 Classical decision making theory
2.2 Behavioral decision making
2.3 Group shift theory
2.4 Diversification of opinions theory
3 Literature
3.1 Differences in investment behavior
3.2 Performance
4 Empirical Study
4.1 Data and methodology
4.2 Risk and performance evaluation
4.2.1 Risk taking
4.2.2 Performance evaluation
4.3 Results
4.4 Critical review
5 Conclusion
Objectives and Research Themes
This study investigates the differences in investment behavior and performance between team-managed and single-managed mutual funds. It seeks to identify whether team-based decision-making structures lead to distinct outcomes in risk taking and financial performance, grounded in theories such as classical decision theory, behavioral decision theory, group shift theory, and the diversification of opinions theory.
- Evolution of mutual fund management structures from 1992 to 2015
- Comparison of classical versus behavioral decision-making theories in finance
- Analysis of risk-taking behaviors in team-managed versus individual-managed funds
- Empirical evaluation of fund performance and the impact of management structure
- Critical review of data accuracy and the influence of team heterogeneity
Excerpt from the Book
1 Introduction
"Single-manager funds are more like practices - law firms, doctors' offices, etc. - while multi-manager funds are more like corporations. You can do well with either one, but there are clear trade-offs."1
When looking at the proportion of team-managed and single-managed mutual funds, it is observed that team funds have increased at the cost of single-managed funds. Thus, from 1992 to 2015, within all mutual funds, team-managed funds increased from 12% to 57%, while single-managed funds decreased from 88% to 43%. A similar development can be seen in the change of the management structure of a fund in Figure 1: A total of 553 mutual funds, which were previously managed individually, switched to a team fund, whereas only 317 funds changed from a team-managed fund to an single-managed fund.
Summary of Chapters
1 Introduction: Provides an overview of the shifting landscape from single-managed to team-managed mutual funds and presents the core motivation for the study.
2 Theory: Examines theoretical frameworks, including classical and behavioral decision theories, alongside group shift and diversification of opinions theories.
3 Literature: Reviews existing studies on how management structures impact investment behavior, risk attitudes, and performance, highlighting conflicting findings.
4 Empirical Study: Details the data basis, methodology, and regression models used to test hypotheses regarding risk and performance, including a critical review of findings.
5 Conclusion: Summarizes the study’s findings, which support the diversification of opinions theory, and suggests directions for future research.
Keywords
Mutual funds, Team-managed funds, Single-managed funds, Investment behavior, Fund performance, Risk taking, Diversification of opinions theory, Group shift theory, Behavioral decision theory, Asset management, Financial performance, Decision making, Quantitative analysis, Market risk, Management structure
Frequently Asked Questions
What is the primary focus of this research?
The work focuses on analyzing the differences in investment behavior and fund performance between mutual funds managed by individual managers versus those managed by teams.
What are the central themes discussed in the book?
The study revolves around the decision-making processes within management teams, the evolution of mutual fund structures, and the impact of these structures on risk taking and financial outcomes.
What is the central research question?
The core question is how team-managed and single-managed funds differ in their investment behavior and performance, and specifically, what dynamics occur within teams during decision-making.
Which scientific methodology is applied?
The study utilizes regression analysis based on panel data from the Center for Research in Security Prices (CRSP), applying Carhart's four-factor model to evaluate risks and performance.
What does the main body of the work cover?
The main body covers a literature review of decision-making theories, the formation of testable hypotheses, and a detailed empirical analysis of fund data from 1992 to 2015.
Which keywords best describe this study?
Key terms include Mutual Funds, Team-managed funds, Investment Behavior, Risk taking, and Diversification of opinions theory.
How do team-managed funds differ in risk taking compared to single managers?
The empirical results indicate that team-managed funds generally take less risk than single-managed funds, which is attributed to the diversification of opinions theory.
Does the management structure significantly impact performance?
The study finds that teams tend to underperform compared to single managers in terms of gross and net returns, though this effect is nuanced and requires cautious interpretation.
Why might the team-based structure lead to different performance outcomes?
The findings suggest that the diversification of opinions within a team leads to more conservative and moderate investment styles, which may influence performance negatively compared to more aggressive single-manager styles.
What are the limitations identified in the empirical analysis?
The author notes that the results should be interpreted with caution due to low R-squared values, potential misclassifications in the data source, and the absence of specific variables like team-internal hierarchies.
- Arbeit zitieren
- Yunus Cagdas (Autor:in), 2021, Management structure for the mutual fund industry. Performance indicators and investment behavior of a team's decision-making process, München, GRIN Verlag, https://www.hausarbeiten.de/document/1158473
