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I want to know if there are some standardized measures to evaluate how irrationally human a portfolio manager is. Are there any performance measures or scorings for behavioral finance effects? How "human" is the manager of a portfolio?

What kind of ratios are there and which data do we need to compute them? (do we only need portfolio and benchmark or the P+L of each single position for example)

Possible effects I can think of right now are:

-) In a benchmarked mandate: Tracking Error is larger if portfolio underperforms (gambling on the losses) than when it outperforms (securing the profits).

-) Volatility decreases when fund ytd performance close to zero (out-)performance (afraid of the "sign effect" because for the average investor it will make less a difference if performance decreases from +0.03% to +0.01% than from +0.01% to -0.01%

Are there any measures of (these) behavioral effects you can think of? How would you measure things like that? Any standard works on this topics I am missing here?

Please note that I dont want to know which effects there are but how to measure them objectively and to secure comparability of the measure to some extent.

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One way might be to look at the herding tendencies of the manager. Or perhaps beta herding. http://www2.warwick.ac.uk/fac/soc/wbs/subjects/finance/faculty1/mark_s/sentimen‌​t.pdf. More herding = more human. Also maybe you should look at the fundamentalists and chartists literature? –  user2921 Oct 2 '12 at 9:47
I think that you will have to device specific tests for the effects that you mention, but also for a range of others. Doubt if there will be one blanket one. best I can think of is to compare the portfolio to benchmark... but that will immediately just measure deviations form market (benchmark) Is benchmark hugging not also a "human" effect. –  Joop Jul 3 '13 at 9:42
One behavioral effect is window dressing: clients look into there portfolios on a quarterly basis (factsheets, notice period for hedge funds...). Managers increase their holdings by end of the quarter in those asset classes that had a good run so far. You can measure this quite easily by looking at holding increases of the best performing assets and see if more is happening by quarter end. Question is, if this is irrational. From the standpoint of the manager it is not assumed he makes clients happy, holds AuM. One has to evaluate if it hurts long-term performance. –  chriscross Sep 3 '13 at 10:45
What you'll need to do is control for their mandate. So you need to look for these type of behavioural stuff that emerge as a result of a deviation from their mandate. –  user2763361 Feb 9 at 17:38
@user2921 you meant this paper www2.warwick.ac.uk/fac/soc/economics/news_events/calendar/… –  lehalle Mar 6 at 20:52

1 Answer 1

I believe there are several questions being asked. Since there are several behavioural patters that could be measured I suggest to first identify which is of most interest. See Hersh for a good summary of patterns. For most behavioural patterns that I can think of you would need transaction data.

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