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Network centrality and delegated investment performance

Author

Listed:
  • Rossi, Alberto G.
  • Blake, David
  • Timmermann, Allan
  • Tonks, Ian
  • Wermers, Russ

Abstract

We show a positive relation between network centrality and risk-adjusted performance in a delegated investment management setting. More connected managers take more portfolio risk and receive higher investor flows, consistent with these managers improving their ability to exploit investment opportunities through their network connections. Greater network connections are shown to be particularly important in reducing the diseconomies of scale for large managers who are well connected. We also use the exogenous merger of two investment consultants, which creates a sudden change in the network connections of the managers they oversee, to provide evidence that a greater number of connections translates into better portfolio performance.

Suggested Citation

  • Rossi, Alberto G. & Blake, David & Timmermann, Allan & Tonks, Ian & Wermers, Russ, 2018. "Network centrality and delegated investment performance," Journal of Financial Economics, Elsevier, vol. 128(1), pages 183-206.
    • Handle: RePEc:eee:jfinec:v:128:y:2018:i:1:p:183-206
    DOI: 10.1016/j.jfineco.2018.02.003
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    More about this item

    Keywords

    Asset management; Networks; Investment performance; Flows; Manager skills;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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