European Business Schools Librarian's Group

Les Cahiers de Recherche,
HEC Paris

No 1102: Managerial Ownership Changes and Mutual Fund Performance

Thorsten Martin and Florian Sonnenburg
Additional contact information
Thorsten Martin: HEC Paris, Postal: 1 rue de la Libération, 78350 Jouy-en-Josas
Florian Sonnenburg: University of Cologne, Postal: Joseph-Stelzmann-Straße 20, 50931 Köln, Germany

Abstract: We study the dynamics of fund manager ownership for a sample of U.S. equity mutual funds from 2005 to 2011. We find that ownership changes positively predict changes in future risk-adjusted fund performance. A one-standard-deviation increase in ownership predicts a 1.6 percent increase in alpha in the following year. Fund managers who are required to increase their ownership by fund family policy show the strongest increase in alpha. They do so by increasing their trading activity in line with the view that higher ownership aligns interests of managers with those of shareholders and induces higher effort.

Keywords: Mutual Funds; Fund Manager Ownership Changes; Fund Performance Predictability; Incentive Alignment; Superior Information

JEL-codes: G11; G14; G20; G23

27 pages, August 11, 2015

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