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The Impact of Experience on Risk Taking, Overconfidence, and Herding of Fund Managers: Complementary Survey Evidence

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  • Brozynski, Torsten
  • Menkhoff, Lukas
  • Schmidt, Ulrich

Abstract

Empirical research has shown that inexperienced fund managers yield significantly higher returns than their more experienced colleagues. If the portfolios of inexperienced are not more risky, this result would contradict the hypothesis of market efficiency. Therefore, it is an important question whether inexperienced fund managers tend to taker higher risks. Higher risk taking may be explained by a higher degree of overconfidence, less herding behavior, or a lower degree of risk aversion. Since the results concerning the relationship between experience and risk taking in previous studies are rather contradictory we analyze whether complementary survey evidence can improve our understanding in this field. In line with the results of previous studies, we find that herding is decreasing with experience while the evidence concerning risk taking and overconfidence is mixed. We will argue that this mixed evidence may be likely due to the heterogeneity in the employed definitions of risk taking and overconfidence.

Suggested Citation

  • Brozynski, Torsten & Menkhoff, Lukas & Schmidt, Ulrich, 2004. "The Impact of Experience on Risk Taking, Overconfidence, and Herding of Fund Managers: Complementary Survey Evidence," Hannover Economic Papers (HEP) dp-292, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-292
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    More about this item

    Keywords

    overconfidence; herding; funds manager;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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