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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Time-Varying Fund Manager Skill
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References
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Favoritism in Mutual Fund Families? Evidence on Strategic Cross-Fund Subsidization
TL;DR: In this paper, the authors investigate whether mutual fund families strategically allocate performance across their member funds favoring those more likely to generate higher fee income or future inflows, and they find evidence of strategic cross-fund subsidization of 'high family value' funds (i.e., high fees or high past performers) at the expense of "low value" funds in the order of 6 to 28 basis points of extra net-ofstyle performance per month, depending on the criteria.
Journal ArticleDOI
Family Values and the Star Phenomenon: Strategies of Mutual Fund Families
TL;DR: In this paper, the authors examine the extent to which a fund's cash flows are affected by the stellar performance of other funds in its family and show that star performance results in greater cash inflow to the fund and to other funds within its family.
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