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Overconfidence Among Professional Investors: Evidence from Mutual Fund Managers

Authors

  • Alexander Puetz,

    1. The first author is from University of Cologne, Department of Finance and Centre for Financial Research (CFR) Cologne. The second author is from University of Mannheim, Department of International Finance. They thank Michaela Bär, Alexander Kempf, Alexandra Niessen, Peer Osthoff, Peter Pope (editor), as well as seminar participants at the 2008 CFR Research Seminar in Tannheim for comments on an earlier draft of this paper. They are especially grateful to an anonymous referee.
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  • Stefan Ruenzi

    Corresponding author
    1. The first author is from University of Cologne, Department of Finance and Centre for Financial Research (CFR) Cologne. The second author is from University of Mannheim, Department of International Finance. They thank Michaela Bär, Alexander Kempf, Alexandra Niessen, Peer Osthoff, Peter Pope (editor), as well as seminar participants at the 2008 CFR Research Seminar in Tannheim for comments on an earlier draft of this paper. They are especially grateful to an anonymous referee.
      Alexander Puetz, University of Cologne, Department of Finance and Centre for Financial Research (CFR), Albertus-Magnus-Platz, 50923 Koeln, Germany.
      e-mail: puetz@wiso.uni-koeln.de
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Alexander Puetz, University of Cologne, Department of Finance and Centre for Financial Research (CFR), Albertus-Magnus-Platz, 50923 Koeln, Germany.
e-mail: puetz@wiso.uni-koeln.de

Abstract

Abstract:  We examine overconfidence among equity mutual fund managers. While overconfidence has been extensively documented among retail investors, evidence from professional investors is scarce. Consistent with theories of overconfidence, we find that fund managers trade more after good past performance. The higher trading activity after good performance is driven by individual portfolio performance, while the market performance has no significant impact. We rule out some alternative explanations for our results like increased trading as a response to tournament incentives, as a response to inflows, or as a rational reaction due to managerial learning about abilities.

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