Risk Shifting and Mutual Fund Performance
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TLDR
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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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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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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On Tournament Behavior in Hedge Funds: High Water Marks, Managerial Horizon, and the Backfilling Bias
George O. Aragon,Vikram K. Nanda +1 more
TL;DR: This paper analyzed the risk choices by hedge funds that perform poorly, relative to other funds and in absolute terms, and test predictions on the extent to which these decisions are related to the fund's incentive contract, investment horizon and dissemination of performance information.
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Do Fund Managers Make Informed Asset Allocation Decisions
TL;DR: In this paper, the authors identify a measure of a manager's forecast for future market returns based on a dynamic model of informed asset allocation, and they test these predictions on a large dataset of mutual fund domestic equity holdings and find strong evidence that, across mutual fund managers, their holdings-based measure appears to contain information for future markets.
Journal ArticleDOI
Performance Maximization of Actively Managed Funds
TL;DR: In this article, the authors derived the performance-maximizing strategy and the least upper bound on such performance enhancement, and showed that if common equity indexes are used as benchmarks, the potential performance enhancement from trading frequently is usually negligible.
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Eliciting Heterogeneous Investor Beliefs from Portfolio Holdings and Performance Evaluation
TL;DR: In this paper, a novel approach was developed to elicit heterogeneous investor beliefs about expected returns as well as common investor belief about the covariance matrix of the risky assets from a snapshot of cross-section portfolio holdings.
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