Risk Shifting and Mutual Fund Performance
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In this article, the authors investigated the performance consequences of risk shifting, as well as the economic motivations and the mechanisms for risk shifting using a holdings-based measure of risk shifts, and found that funds that increase risk perform worse than funds that keep stable risk levels over time.Abstract:
Mutual funds change their risk levels significantly over time This paper investigates the performance consequences of risk shifting, as well as the economic motivations and the mechanisms of risk shifting Using a holdings-based measure of risk shifting, we find that funds that increase risk perform worse than funds that keep stable risk levels over time In addition, funds that expect higher benefits from risk shifting are more likely to increase risk and perform particularly poorly after increasing risk Our results are consistent with the notion that agency problems, rather than the ability to take advantage of changing investment opportunities, are the likely motivation behind risk shifting behaviorread more
Citations
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Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transactions Costs, and Expenses
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Time-Varying Fund Manager Skill: Time-Varying Fund Manager Skill
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The flow-performance relationship around the world
TL;DR: This paper used a new dataset to study how mutual fund flows depend on past performance across 28 countries and found that there are marked differences in the flow-performance relationship across countries, suggesting that US findings concerning its shape do not apply universally.
ReportDOI
Time-Varying Fund Manager Skill
TL;DR: This paper proposed a new measure of managerial ability that weighs a fund's market timing more in recessions and stock picking more in booms than either market timing or stock picking alone and predicts fund performance.
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A Rational Theory of Mutual Funds' Attention Allocation
Marcin Kacperczyk,Marcin Kacperczyk,Stijn Van Nieuwerburgh,Stijn Van Nieuwerburgh,Stijn Van Nieuwerburgh,Laura Veldkamp,Laura Veldkamp,Laura Veldkamp +7 more
TL;DR: In this article, a new attention allocation model that uses the state of the business cycle to predict information choices, which in turn predict observable patterns of portfolio investments and returns is developed.
References
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Journal ArticleDOI
Informed Trading, Liquidity Provision, and Stock Selection by Mutual Funds
TL;DR: In this article, the authors show that a mutual fund's stock selection skill can be decomposed into impatient trading and liquidity provision, and validate their method by verifying that liquidity providing trades are the primary source of value for the Dimensional Fund Advisors U.S. Micro Cap fund, consistent with the observations by Keim and Cohen (2002).
Journal ArticleDOI
Mutual fund risk and market share-adjusted fund flows
Matthew Spiegel,Hong Zhang +1 more
TL;DR: In this article, the authors show that the widely held belief that the flow response function is convex is due solely to misspecification of the empirical model and that convexity with fractional flows largely disappears in a conditional analysis that controls for heterogeneity.
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Do Mutual Funds Time the Market? Evidence from Portfolio Holdings
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Mutual Fund Tournaments: The Sorting Bias and New Evidence
TL;DR: This article found that first half underperforming managers increase the risk of their portfolios in the second half of the year, and that this second half "tournament behavior" is unrelated to equity market returns.
Journal ArticleDOI
Impatient Trading, Liquidity Provision, and Stock Selection by Mutual Funds
TL;DR: The authors showed that past performance predicts future performance better among funds trading in stocks affected more by information events: Past winners earn a risk-adjusted after-fee excess return of 35 basis points per month in the future.