An investigation on the effects of fund manager’s narcissism on fund performance

• Main Author: ZHOU, Ning
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: Narcissism; Fund managers; Fund performance; Corporate Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/etd_coll/619; https://ink.library.smu.edu.sg/context/etd_coll/article/1617/viewcontent/GPBA_AY2018_DBA_Zhou_Ning.pdf
• Institution: Singapore Management University

As the capital market continues to expand, the benefits of securities investment funds have become increasingly prominent. However, for investors, selecting the right investment fund from numerous options can be more challenging than directly choosing stocks. The process of seeking investment opportunities also involves selecting the right fund manager, a step often underestimated by investors. Research in behavioral finance indicates that fund managers tend to exhibit irrational decision behavior under immense pressure and uncertain investment outcomes. Narcissism as a psychological trait may influence fund managers’ decision-making behavior. This study, through questionnaires and empirical analysis, examines the narcissistic traits of Chinese fund managers and their impact on fund performance. The results show that the degree of narcissism in fund managers significantly negatively affects fund performance. Fund managers with high narcissism often make risky investment decisions due to overconfidence, leading to erroneous investment choices and weakened fund performance. Additionally, fund managers with higher levels of narcissism exhibit higher trading frequencies, or turnover rates, which typically result in higher transaction costs, eroding long-term returns. Employing the Narcissism Scale by Martin, Côté, and Woodruff (2016) to measure narcissism levels among fund managers, this study aims to examine the impact of narcissism on fund managers’ performance and various management and investment behaviors, including teamwork, co-investment ratio, trading frequency, and concentration. This study also considers control variables such as gender, years of experience, educational background, management scale, and type of holdings. Despite finding a significant correlation between fund managers’ narcissism and fund performance, the study only supports a significant relationship between narcissism and trading frequency, rather than with other management abilities and investment behaviors. Although narcissistic fund managers may achieve short-term success, their investment decisions may lead to greater risks and unstable performance in the long term. Therefore, when evaluating a fund manager’s investment ability, investors and fund managers should consider personal traits, including the level of narcissism. The study offers insights into the role of narcissism in financial decision-making and provides practical guidance for managing fund investments in the financial industry. Finally, this dissertation discusses the limitations of the study and outlines future research directions, emphasizing the importance of further research investigating how narcissistic traits influence investment decisions and fund performance. It also explores opportunities for leveraging these traits to implement effective risk management strategies.