Overconfidence among Professional Investors: Evidence from Mutual Fund Managers

We examine overconfidence among equity mutual fund managers. While overconfidencehas been extensively documented among retail investors, evidence fromprofessional investors is scarce. Consistent with theories of overconfidence, we findthat fund managers trade more after good past performance. The higher trading activityafter good performance is driven by individual portfolio performance, while themarket performance has no significant impact. We rule out some alternative explanationsfor our results like increased trading as a response to tournament incentives,as a response to inflows, or as a rational reaction due to managerial learning aboutabilities.