1. Are Swiss Pension Fund Managers overconfident?
Christoph Gort, Mei Wang, Michael Siegrist
Target Journal:Journal of Behavioral Finance
March 26, 2007

2. Agenda Introduction Hypotheses Sample and questionnaire
Are Swiss pension fund managers miscalibrated?
Individual characteristics and miscalibration
Conclusions
Facts about pension plan investments
Policy Implications
University of Zurich, March 26, 2007

3. Introduction 1-2
Students and private investors are overconfident (Odean (1998)) but what about managers of Swiss pension plans?
Overconfidence in the domain of financial markets
Facets of overconfidence (see Glaser and Weber (2003))
Miscalibration
Better-than-average-effect
Illusion of Control
Overoptimism
Focus on differences across individuals. Evidence on miscalibration on average provides not enough information
University of Zurich, March 26, 2007

4. Introduction 2-2 Impacts of overconfidence
Underestimation of risk (De Long et al (1991))
Increased risk taking after success (Gervais and Odean (2001))
Lower expected utility but higher risks in theoretical models (De Long et al (1991))
Lower performance on financial markets (Odean (1999))
Lower performance on experimental markets (Biais et al (2002))
Over- and underreaction to news in the market (Daniel et al (1998))
Higher trading volumes (Barber and Odean (2001))
More active management despite unsuccessful track record (Lakonishok et al (1992))
University of Zurich, March 26, 2007

5. Hypotheses Practitioners of Swiss pension funds are miscalibrated...
They provide too narrow confidence intervals for estimates of historical returns
as well as for return forecasts on financial markets
...more overconfident than a convenience sample
Individual characteristics determine overconfidence
Education (4 categories)
Experience (3 categories)
Age …
University of Zurich, March 26, 2007

6. Sample Professional sample with practitioners in Swiss pension funds
Response rate of 22.6%
Managers and investment committee members
Large differences across educations, experiences and ages
Not enough data to study gender differences
Laymen sample with employees from the City of Zurich
104 participants
Response rate not available
Pretty heterogenous sample
University of Zurich, March 26, 2007

7. Questionnaire Tasks in questionnaire
Individual characteristics
90% confidence intervals for return forecasts in different asset classes. Upper and lower boundaries
90% confidence intervals for historical annual returns in different asset classes. Upper and lower boundaries
Roughly 20 minutes to complete (too long)
Surveymonkey and hardcopies to distribute questionnaire
Roughly 3 months of data collection
SPSS 13 for data analysis
University of Zurich, March 26, 2007

8. Evidence for historical return confidence intervals
University of Zurich, March 26, 2007

9. Evidence for future return confidence intervals
University of Zurich, March 26, 2007

10. Key findings from 90% confidence intervals
Intervals for historical returns are too narrow
Not 90% but only about 70% are included
Underestimation of upside as well as downside
Intervals for future returns are even narrower
Very low implied volatility
Well informed about relative risks of asset classes
Laymen are more miscalibrated than Swiss pension plan managers
University of Zurich, March 26, 2007

11. Individual characteristics and miscalibration 1-3
University of Zurich, March 26, 2007

12. Individual characteristics and miscalibration 2-3
University of Zurich, March 26, 2007

13. Individual characteristics and miscalibration 3-3
Key findings
Education from university (especially general) reduces miscalibration
More experience reduces miscalibration
Age increases miscalibration
Financial education from university is related to more accurate confidence intervals
Level of significance varies across the different asset classes and across the professional and the laymen samples but the effects are all in line with each other
University of Zurich, March 26, 2007

14. Conclusions The practitioners of Swiss pension funds are miscalibrated
Laymen are more miscalibrated than professionals of Swiss pension plans
Miscalibration is pretty stable across individuals in different estimation and forecasting tasks
Miscalibration is (partly) determined by individual characteristics like education, experience and age
Younger people with an education from university and also some experience finance are the least miscalibrated
University of Zurich, March 26, 2007