Investment Behaviour of German Equity Fund Managers - An Exploratory Analysis of Survey Data

Abstract

In order to shed light on the "black box" of institutional equity investing in a systematic manner, I conducted a broadly based questionnaire which received a large response from German mutual fund companies. The survey asked fund managers for their basic views and practices and for insights into their company's performance-measurement and compensation incentives. It was possible to identify three core types of investors, labelled fundamentalists, tacticians and methodologists, in the data on investment behaviour.Common to all types is the primary aim of achieving above-average returns on investment with due allowance being made for sluggishness in the reaction of market prices to new information. Another universal feature of institutional equity investing turns out to be a heavy reliance on information sources which offer a means of confirmation and through which the contagions of fear and exuberance may be transmitted. In general fund managers exhibit a pronounced preference for "winner-type" and "spotlight" stocks as well. All investor groups recognise, in the first instance, underlying economic information as a source of superior value. However, a potential for exaggerated market dynamics is suggested by the fact that the mere arrival of news from corporations or analysts' earnings revisions is generally thought to impart as strong a market impulse as the perceived mispricing of stocks relative to the market or sector as such. Furthermore, those who appear to be best suited to conduct fundamental arbitrage are nevertheless likely to be constrained, to a sig-

To be good or to be better: asset managers’ attitudes towards herding

“…Moreover, the typical personal characteristics of the surveyed asset managers are in line with the findings in current surveys in German asset management, e.g. Arnswald (2001) or Brozynski et al (2004). For detailed information see Lütje and Menkhoff (2004).…”

“…Baker's (1998) interview study conducted with fund managers in the United Kingdom as well as Arnswald's (2001) questionnaire survey of German fund managers provide evidence for their short term orientation.…”

Bonus Payments and Fund Managers' Behavior: Transatlantic Evidence

“…Moreover, larger investment firms typically employ more asset managers, a fact being reflected in the data set (see Table 1). Finally, the demographic characteristics of fund managers in our sample are almost identical to those in different survey studies for the US (Farnsworth and Taylor, 2006) and Germany (Arnswald, 2001, Menkhoff et al, 2006, indicating that our data are not distorted by a selection bias. 11 Table 2 presents the typical personal characteristics of the surveyed asset managers clustered by country.…”

2. Professionals’ endorsement of behavioral finance: Does it impact their perception of markets and themselves? 9

“…Accordingly, the mean of responding fund managers shows an age of about 35 years, has professional experience of ten years, is of male gender, earns a bonus payment of 25%, has a university degree, works rather in a non-governing position, practices active fund management and manages stocks rather than bonds. This data is consistent with the information from similar surveys in Germany such as Menkhoff (1998) or Arnswald (2001.…”