Business Publications
Document Type
Article
Publication Date
4-2024
First Page
1
Last Page
49
Abstract
We propose a new channel through which teamwork improves mutual fund activity: by offsetting individual overconfidence, teams mitigate excessive performance-induced trading. The predictions of our theoretical model are confirmed in the data. Team managed funds trade less after good performance than single-managed funds, and this differential increases with team size. Changes from single to team management correspond to reductions in performance-induced trading. We rule out alternative explanations including differences in manager skill, experience, fund governance, gender, and fund flows. Overconfident trading by single-managed funds results in lower next-period returns compared to team-managed funds. Overall, team management reduces uninformed overconfident trading.
