Portfolio manager compensation and mutual fund performance

Author

Linlin MA
YUEHUA TANG, Singapore Management UniversityFollow
Juan-Pedro GOMEZ

Publication Type

Conference Paper

Publication Date

5-2016

Abstract

We use a novel dataset to study the relation between individual portfolio manager compensation and mutual fund performance. Managers with explicit performance-based pay exhibit superior subsequent fund performance, especially when investment advisors link pay to performance over a longer time period. In contrast, alternative compensation arrangements, such as fixed salary, assets-based pay, or advisor-profits-based pay are not associated with superior performance. Our tests further show that the positive relation between performance-based contracts and fund performance is not driven by the selection of talented managers proxied by education background. Lastly, managers with performance-based pay engage less in risk-shifting activities.

Keywords

Portfolio manager compensation, mutual funds, fund performance, risk shifting

Discipline

Finance and Financial Management | Management Sciences and Quantitative Methods

Research Areas

Finance

Publication

Finance Down Under 2014 Building on the Best from the Cellars of Finance, Melbourne, Australia, 2016 May 13

Identifier

10.2139/ssrn.2024027

Publisher

Routledge

City or Country

Melbourne, Australia

Citation

MA, Linlin; YUEHUA TANG; and GOMEZ, Juan-Pedro. Portfolio manager compensation and mutual fund performance. (2016). Finance Down Under 2014 Building on the Best from the Cellars of Finance, Melbourne, Australia, 2016 May 13.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5169

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Additional URL

https://doi.org/10.2139/ssrn.2024027