Arman Eshraghi

Heroes and victims: fund manager sensemaking, self-legitimation and storytelling

This paper explores how fund managers continue to do their job when on one level they know they cannot all be exceptional. They do this by telling stories, constructing satisfying narratives to explain to themselves, as well as others, why their investments work out and providing equally plausible reasons for when they underperform. Using the story typology of Gabriel (2000. Storytelling in Organizations: Facts, Fictions, and Fantasies. Oxford: Oxford University Press.) – epic, tragic, comic and romantic, we explore two sets of fund manager narratives. First, we analyse the transcripts of interviews with 50 equity fund managers in some of the worlds largest investment houses. Second, we examine a similar number of published fund manager reports to their investors. In both cases, we show how storytelling is used by asset managers to make sense of what they do and justify their value to themselves as well their clients and employers. Similar processes are employed in both sets of narratives, one verbal and informal, the other written and formal. Our study serves to highlight how storytelling is an integral part of the work of the professional investor.

The Financial Impact of Fed Policy Statements and Chairman Sentiment: The Case of Gold and Silver Markets

This study investigates the impact of Federal Reserve monetary policy decisions and communication on global gold and silver markets from May 1999 to June 2012. We argue that the discourse used by central bankers is not only a key driver of financial markets based on empirical evidence, but also, in essence, a device to convey authority and power. Using computer-assisted content analysis, we analyse speech styles of the current and former Federal Reserve Chairmen, Ben Bernanke and Alan Greenspan, to explore their impact on market sentiment. We find that the surprise component of Fed monetary policies significantly influences gold and silver markets. For example, a 1% surprise rate hike increases gold bullion prices by 1.3% and silver bullion prices by 1.5%. We also find significant stylistic differences between the two Fed Chairmen in their policy communications and their impact on market volatility.

Fund Manager Overconfidence and Investment Performance: Evidence from Mutual Funds

The purpose of this paper is to investigate to what extent mutual fund managers, as an important and representative group of professional investors, are prone to overconfidence and associated behavioural biases such as self-serving attribution. More importantly, we explore how these psychological attributes may have any bearing on investment performance. The fundamental question is why, how, and through which mechanisms does overconfidence affect investment performance, if at all. We measure managerial overconfidence by content analysing the narratives of reports fund managers write to their investors, and by using a range of proxies including overoptimism, excessive certainty and excessive self-reference. We study a large sample of US actively managed equity mutual funds during the 2003-09 period. The cross-sectional variations in this sample demonstrate that superior past performance boosts managerial overconfidence as measured by a number of proxies. Importantly, our findings also suggest that excessive overconfidence is associated, to a large extent, with diminished future investment returns in the 12 months following the publication of the annual report. This effect is robust across different investment styles, although it appears to be stronger among growth-oriented funds. A closer investigation reveals an overall inverted-U relationship between fund manager overconfidence and subsequent investment performance. Furthermore, a hedging strategy based on shorting funds with abnormally overconfident managers and going long in funds with normally confident managers yields positive average returns after controlling for Carhart factors.

When do individual bank executives matter for bank performance

This chapter seeks to understand how the characteristics of executive directors affect the market performance of US banks. To explore the expected performance effects linked to executive characteristics, we measure changes in the market valuation of banks linked to announcements of executive appointments. We show that age, education and the prior work experience of executives create shareholder wealth while gender is not linked to measureable value effects. Our results are robust to the treatment of selection bias. By illustrating the wealth effects linked to executive appointments, our study contributes to the current debate on whether and how individual executives matter for firm performance and behaviour. The findings also shed light on the value of human capital in the banking industry. This chapter offers important insights to policymakers charged with ensuring the competency of executives in banking. Our findings advocate policies that mandate banks to appoint highly qualified executives with relevant banking experience.