The effect of management team characteristics on performance and style extremity of mutual fund portfolios
Abstract: Along with mutual
funds’ scale and quantity expanding for our country, it is common for fund
management companies hiring new managers or the original fund managers
mobilizing from one to another. The high liquidity of fund managers makes
different managers regroup to manage the funds that belong to the same fund
management company in each fund year. The characteristics of these different
management team will influence the fund performance, and also affect the
earnings of the fund management company and portfolio investors. The purpose of
this paper is as follows. First, evaluating the effect of management team
characteristics on portfolio characteristics: risk, performance, and extremity.
Second, testing the hypothesis that the ranking of mid-year performance have
effect on investment style extremity and research what relationship exists
between this phenomenon and management team characteristics in depth.
Design/methodology/approach: On the analysis of the relationships between
the management team characteristics and portfolio characteristics, a series of
OLS regressions is run where the time series regression model (the factor
model) and cross-sectional regression are included based on using the STATA,
EVIEWS and MATLAB. The validity and practicability of the model will be
verified in the paper. All of the above are aimed at achieving portfolio
optimization and realizing the maximization of the interests of fund management
companies and investors.
Findings: The main findings are as follows. Teams with more doctors or
MBA (CPA and CFA) hold more risky portfolios, while teams with long team tenure
hold less. More members and large gender diversity have negative effect on
performance, and the opposite is age diversity. Teams with more members and
long tenure tend to hold less extreme style decisions, but age diversity is
related to more. Besides, tournament hypothesis does exist in China investment
funds industry especially when the economy is in a downward phase, and fund
managers are more likely to raise the risk of portfolio when their term is
coming to an end.
Practical implications: These findings have important implications for
fund management companies as they try to form a highly efficient management
team as well as for individual investors’ investment allocation decisions.
Originality/value: This paper propose a new perspective to evaluate the
relationship between the management team characteristics and portfolio
characteristics, which focus on both sides investors rather than a single fund.
Keywords: mutual fund
portfolios, management team characteristics, style extremity, three factor
model, tournament hypothesis
Author: Liu Qiong, Kuan Yang,
Yinggao Zhou
Journal Code: jptindustrigg140048
