Clare Flynn Levy of Essentia Analytics discusses how measuring the outcome of behavioral nudges demonstrates return on investment for asset managers.
Insight
Flynn Levy: Contentious investment committee decisions often outperform unanimous ones
“And what we found so far is sometimes contentious decisions are the better decisions. For some people anyway, and for the first firm that we did this with, that was the case, which is, and particularly around whether, so when they would vote unanimously on som…”
Prediction Not checkable as stated
Flynn Levy: Managers who capture behavioral alpha will survive industry headwinds
“A lot of active managers will leave because it is getting so much harder to have a competitive advantage. But the ones who have behavioral alpha advantage, you know, where they actually are looking at their own behavior and saying, I want to continuously impro…”
Insight
Flynn Levy: Forcing portfolio managers to pause leads to better decisions
“What we find is that people's behavior changes, so when you do that, people do make a better decision, and it's not because we've told them what decision to make, it's because we've told them to pause and make a decision, whatever that decision is.”
Insight
Flynn Levy: Most active portfolio managers possess genuine underlying investment skill
“I see managers, it's like I look at x-rays all day long of different managers, and I see a lot of skill. It's quite rare that I see somebody where you're like, oh god, you should really find a different occupation. Usually there's something to work with”
Assertion Not checkable as stated
Flynn Levy: Most fund managers capitulate at bottoms due to loss aversion
“The vast majority of fund managers, not surprisingly, show evidence of loss aversion around exit timing when prices have been on a negative trend, or a positive one if they're short. So when the price is moving against you, the tendency is to hold on for too l…”
Assertion Supported
Flynn Levy: Disposition effect is less prevalent in professional managers than retail
“We definitely do sometimes see the disposition effect as an extension of the loss aversion point, so not just holding on losers for too long, but cutting winners early. Less prevalence in professional fund managers than in retail investors, though.”