Finance
Research insight
INVITED EDITOR
Editorial from
Melissa Prado
Associate Professor of Finance at Nova SBE | NOVO BANCO Entrepreneurship & Technology Chair
July 16, 2024
8. Decent work and economic growth

8. Decent work and economic growth

Promote inclusive and sustainable economic growth, full and productive employment and decent work for all
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Competition and cooperation in mutual fund families

Melissa Prado, Novo Banco Entrepreneurship & Technology Chair, explains her recent research paper. The compensation strategy to attract and retain fund managers is a key decision in operating a successful investment advisory firm. This analysis helps to identify the impact of two different compensation approaches – maximising fund performance or encouraging cooperation among their managers – and the characteristics of investment advisors who choose cooperative or competitive incentive schemes.

Abstract

Using manager compensation disclosure and intra-family manager cooperation measures, we create indices of family-level competitive/cooperative incentives. Families that encourage cooperation among their managers are more likely to engage in coordinated behavior (e.g., cross-trading and cross-holding) and have less volatile cash flows. Families with competitive incentives generate higher performing funds, a higher fraction of “star” funds, but greater performance dispersion across funds. In examining the determinants of incentive schemes, competitive families are more likely to manage institutional money, and cooperative families are more likely to distribute through brokers, consistent with retail demand for nonperformance characteristics.

A research by Richard Evans, Melissa Porras Prado, Rafael Zambrana

Published in the Journal of Financial Economics, this research paper can be accessed here

Melissa Prado
Associate Professor of Finance at Nova SBE | NOVO BANCO Entrepreneurship & Technology Chair
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