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Risk-shifting in institutionally-sponsored funds

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  • Chu, Pyung Kun

Abstract

In this study, I examine the flow-performance relation and risk-shifting behavior in institutionally-sponsored funds. The flow-performance relation is symmetric in institutionally-sponsored funds. Even with a symmetric flow-performance relation, which does not yield option-like incentives for risk-shifting, institutionally-sponsored funds still engage in risk-shifting behavior such that past losers increase risk more than past winners. This pattern of risk-shifting behavior is especially strong between long-term winners and losers, and between top and bottom performers. The prevalence of asymmetric performance-based fee contracts in institutionally-sponsored funds is a potential driver of their risk-shifting behavior.

Suggested Citation

  • Chu, Pyung Kun, 2022. "Risk-shifting in institutionally-sponsored funds," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000988
    DOI: 10.1016/j.frl.2022.102786
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    References listed on IDEAS

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    More about this item

    Keywords

    Fund flow; Risk-shifting; Institutionally-sponsored funds;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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