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Managerial Ownership Changes And Mutual Fund Performance

Managerial Ownership Changes And Mutual Fund Performance

Thorsten Martin

HEC Paris - Finance Department

Florian Sonnenburg

University of Cologne - Centre for Financial Research (CFR)

August 11, 2015

HEC Paris Research Paper No. FIN-2015-1102


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.

Managerial Ownership Changes And Mutual Fund Performance - Introduction

Since March 2005, mutual funds have to report fund managers’ ownership within the Statement of Additional Information (SAI) using broad ownership ranges. By using one year of ownership data, Khorana, Servaes, and Wedge (2007) and Evans (2008) show that the level of ownership predicts future risk-adjusted performance. Since then, more and more fund investors are paying attention to manager ownership (see...