Abstract
The economic literature predicts that the average skill level in any industry is higher in larger cities. The existing labor sorting mechanism may also increase overconfidence of managers in financial centers if they attribute too much of their successes to their ability rather than luck. This article examines the relation between managerial ability and behavior across cities using U.S. equity mutual fund data and the Gervais and Odean (2001) model of overconfidence. Funds in financial centers on average perform better in terms of both gross and risk-adjusted returns. These funds however exhibit under-diversification and excessive trading, which is particularly high among young funds and managers and becomes detrimental for performance for high-performing funds and following bull markets. Our results suggest that financial centers attract more sophisticated, yet overconfident money managers. JEL Classification: G14; G23
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
