Management Compensation and the Performance of Mutual Funds
AbstractThis paper examines the mutual fund market as a market for the sale of management services using an unbalanced panel of 860 US equity funds over the 1976-1993 period. From among the performance measures for which investors have the necessary information to compute, we find that the Jensen measure best explains the change in market shares over time. It is found, however, that investors actually value the systematic component of risk more than indicated by the use of Jensen's performance measure. Our results also suggest that investors in load funds are less responsive to both components of performance (risk and return) than are investors in no-load funds. Investors, moreover, value recent past performance differently for funds with different attributes. An important result of the paper relating to the incentives provided with the widely used fixed-fee compensation schemes is that past fund performance influences individual investment decisions and hence future net asset values of funds, implying strong incentives for managers to increase their performance and by doing so, their compensation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number berk-97-01.
Length: 38 pages
Date of creation: 29 Apr 1997
Date of revision:
Contact details of provider:
Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283
Find related papers by JEL classification:
- G2 - Financial Economics - - Financial Institutions and Services
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jon A. Christopherson & Wayne E. Ferson & Debra A. Glassman, 1996.
"Conditioning Manager Alphas on Economic Information: Another Look at the Persistence of Performance,"
NBER Working Papers
5830, National Bureau of Economic Research, Inc.
- Christopherson, Jon A & Ferson, Wayne E & Glassman, Debra A, 1998. "Conditioning Manager Alphas on Economic Information: Another Look at the Persistence of Performance," Review of Financial Studies, Society for Financial Studies, vol. 11(1), pages 111-42.
- M. K. Berkowitz & Y. Kotowitz, 1993. "Incentives and Efficiency in the Market for Management Services: A Study of Canadian Mutual Funds," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 850-66, November.
- Brown, Keith C & Harlow, W V & Starks, Laura T, 1996. " Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 51(1), pages 85-110, March.
- Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-61, June.
- Fama, Eugene F, 1972. "Components of Investment Performance," Journal of Finance, American Finance Association, vol. 27(3), pages 551-67, June.
- Elton, Edwin J, et al, 1993. "Efficiency with Costly Information: A Reinterpretation of Evidence from Managed Portfolios," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 1-22.
- Grinblatt, Mark & Titman, Sheridan, 1993. "Performance Measurement without Benchmarks: An Examination of Mutual Fund Returns," The Journal of Business, University of Chicago Press, vol. 66(1), pages 47-68, January.
- Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
- Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-80.
- Chevalier, J. & Ellison, G., 1996.
"Risk Taking by Mutual Funds as a Response to Incentives,"
96-3, Massachusetts Institute of Technology (MIT), Department of Economics.
- Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
- Judith A. Chevalier & Glenn D. Ellison, 1995. "Risk Taking by Mutual Funds as a Response to Incentives," NBER Working Papers 5234, National Bureau of Economic Research, Inc.
- Goetzmann, W.N. & Ibbotson, R.G., 1990. "Do Winners Repeat? Patterns in Mutual Fund Behavior," Papers fb-_91-04, Columbia - Graduate School of Business.
- Lehmann, Bruce N & Modest, David M, 1987. " Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, vol. 42(2), pages 233-65, June.
- Bruce N. Lehmann & David M. Modest, 1985. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," NBER Working Papers 1721, National Bureau of Economic Research, Inc.
- Michael K. Berkowitz & Yehuda Kotowitz, 1997. "The Determinants of Management Expenses," Working Papers berk-97-02, University of Toronto, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer).
If references are entirely missing, you can add them using this form.