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Time-Varying Incentives in the Mutual Fund Industry

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Author Info
Anthony Tay () (School of Economics, Singapore Management University)
Jacques Olivier (HEC Paris and CEPR)

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Abstract

This paper re-examines the incentives of mutual fund managers arising from investor flows. We provide evidence that the convexity of the flow-performance relationship varies with economic activity. We show that the effect is economically large and is not driven by abnormal years. We test two possible channels through which this pattern may arise. We investigate implications of the time-varying convexity for the incentives of managers to alter strategically the risk of their portfolios. We provide evidence that poor mid-year performers increase the risk of the portfolio only when economic activity is strong. Finally, we briefly discuss some methodological implications.

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Publisher Info
Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 10-2008.

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Length: 46 pages
Date of creation: Mar 2008
Date of revision: Jun 2008
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:10-2008

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Related research
Keywords: Mutual funds; Incentives; Flow-Performance Relationship; Convexity; Business Cycles;

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions

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