Essays on gender and investment decisions : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Albany, New Zealand

Abstract

The puzzle of whether gender differences exist in behavioral biases and investment preferences of highly skilled and experienced professionals remains unsolved. Subsequently, this thesis consists of three related essays on investment decisions by gender of professionals in the field of finance. The first essay shows that prospect theory value influences insider trading decisions, and the impact is stronger among female executives’ trades. Female insiders tend to carry more biased trades and suffer significantly higher resultant losses, as compared to their male counterparts. Female insiders who buy (sell) when their company's prospect theory value is above (below) other firms’ prospect theory values, lose 47 basis points over the next month. While the findings contradict the overconfidence hypothesis that predicts poor trading decisions by male insiders, the results are consistent with the male insiders’ superior information access hypothesis, suggesting that informational disadvantage serves as a possible channel of higher behavioral biases in female insiders’ trading. The second essay demonstrates that the gender of mutual fund managers affects the liquidity of a portfolio. Female managers prefer higher portfolio liquidity than their male counterparts. Funds managed by single female managers are 8-25% more liquid than single male managed funds. Contrary to the excessive trading hypothesis that expects a higher liquidity preference by overconfident male fund managers, the findings support the inclination of female fund managers for the price efficiency hypothesis. Funds experience increased liquidity when they transition to a female manager. The third essay documents that the collective self-construal of female fund managers explains their tendency to invest less actively as compared to their male counterparts. Funds with a higher proportion of female managers in the management team closely track the multifactor benchmark. For the funds managed by more female managers than males, the economic benefits of diversification are 1.86% lower than other funds. Consistent with the literature, female fund managers herd more, take less risk, and are less overconfident than males. These investment behaviors are likely to be the possible explanations of the less active investing strategy of female fund managers.