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Counterintuitive bias

A new study at Cambridge Judge Business School finds that ‘gender-based attention bias’ toward women mutual fund managers works both ways, lowering fund-flow volatility, and this could boost the current low number of women fund managers.

A businesswoman looks out of the window of a skyscraper at the city below.
Raghavendra Rau.
Professor Raghavendra Rau

The mutual fund industry has long been plagued by gender issues: only 11% of US-based funds are managed by women, and investors direct significantly lower flows to female-managed funds – which may exacerbate female underrepresentation as firms hire fewer women given that the companies generate profits from fees charged on assets under management.

A new study from Cambridge Judge Business School uncovers a different phenomenon, a “gender-based attention bias” that works both ways: when female-managed funds perform well, the funds subsequently experience lower fund inflows than male-managed funds; yet when female-managed funds perform poorly, the funds experience lower outflows than male-managed funds.

“Simply put, investors pay less attention to female fund managers,” the paper says, and this finding could, perhaps counterintuitively, lead to more women joining the mutual fund industry.

“For mutual fund companies, the study’s finding that gender-based attention bias works both ways has the potential to lower the volatility of flows in and out of the fund, which is a desirable effect because a stable set of cash flows make it easier for a fund to plan,” says Professor Raghavendra Rau of Cambridge Judge Business School, co-author of the new study. “So this could create a new incentive for firms to bring more women into a mutual-fund industry that currently lags far behind many other professions in gender balance.”

Jinhua Wang.
Jinhua Wang

The study cites 2019 US Census Bureau figures, based on the agency’s sample group, showing that females comprise 37.5% of lawyers, 49% of judges, 34.5% of economists, 19% of surgeons, and 26% of chief executives. The 11% of mutual funds managed by women in 2020 was barely changed from 10.3% in 2016.

The paper – entitled “Do Investors Pay Less Attention to Women (Fund Managers)?” – is co-authored by Raghavendra Rau, Sir Evelyn de Rothschild Professor of Finance at Cambridge Judge Business School, and by Jinhua Wang, a PhD candidate at Cambridge Judge in the Business School’s Finance subject group.

Examining gender bias in corporate finance is often challenging, because given the many factors that go into corporate performance it is difficult to establish how much an output is dependent on a single CEO or other individual. Similarly, previous studies of fund flow performance typically focus on aggregate fund flows, which makes it hard to isolate individual investors’ differential responses towards fund managers’ gender.

The new study, in contrast, examines how flow-performance sensitivity for individual investors is affected by the gender of the fund manager by using a unique dataset provided by a large (unnamed in the study) fintech platform in China. The dataset examined retail investors’ monthly positions in 253 Chinese stock funds for 172,672 retail investors over a two-year period (August 2017 to July 2019), totalling 2.35 million user-fund-month observations.

The study then controls and finds no statistically significant effect for many factors: these include the investor’s gender, age, monthly investment amounts, place of residence, and risk aversion level; the fund manager’s educational background and length of tenure; and the fund’s objectives, size and fees.

“Attention bias appears significant across all our investor groups,” the study says. “There do not appear to be significant gender differences between male and female investors in their levels of attention bias away from female fund managers.” The study also finds that this gender-based attention bias also extends to media coverage of individual fund managers, based on 400,000 financial news articles in Chinese media: while investors increased their flow into funds following media coverage of male fund managers, the flow response was less sensitive for female fund managers. The proportion of fund managers in China who are women, at 15%, is similar to that of many other countries although slightly higher than the proportion in the US.