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Tournaments in mutual fund families

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  • Kempf, Alexander
  • Ruenzi, Stefan

Abstract

In this paper we examine intra-firm competition in the U.S. mutual fund industry. Our empirical study shows that fund managers within mutual fund families compete against each other. They adjust the risk they take dependent on the relative position within their fund family. The direction of the adjustment crucially hinges on the competitive situation within a family. Funds from small families behave in the opposite way than funds from large families. The results are very robust. They hold for different time periods and for different subgroups of funds. --

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Bibliographic Info

Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 04-02.

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Date of creation: 2004
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Handle: RePEc:zbw:cfrwps:0402

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  1. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns Of Mutual Fund Managers," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(2), pages 389-432, May.
  2. Luis Corchón & Miguel González-Maestre, 1994. "On the competitive effects of divisionalization," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 1994-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Athanasios Orphanides, 1996. "Compensation incentives and risk taking behavior: evidence from mutual funds," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 96-21, Board of Governors of the Federal Reserve System (U.S.).
  4. Taylor, Jonathan, 2003. "Risk-taking behavior in mutual fund tournaments," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 50(3), pages 373-383, March.
  5. Stephen J. Brown, 2001. "Careers and Survival: Competition and Risk in the Hedge Fund and CTA Industry," Journal of Finance, American Finance Association, American Finance Association, vol. 56(5), pages 1869-1886, October.
  6. R. Mark Isaac & Duncan James, 2000. "Asset Markets: How They Are Affected by Tournament Incentives for Individuals," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 995-1004, September.
  7. Khorana, Ajay & Servaes, Henri, 1999. "The Determinants of Mutual Fund Starts," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 12(5), pages 1043-74.
  8. Jennifer Lynch Koski & Jeffrey Pontiff, 1999. "How Are Derivatives Used? Evidence from the Mutual Fund Industry," Journal of Finance, American Finance Association, American Finance Association, vol. 54(2), pages 791-816, 04.
  9. Khorana, Ajay, 1996. "Top management turnover An empirical investigation of mutual fund managers," Journal of Financial Economics, Elsevier, Elsevier, vol. 40(3), pages 403-427, March.
  10. Edwin J. Elton, 2001. "A First Look at the Accuracy of the CRSP Mutual Fund Database and a Comparison of the CRSP and Morningstar Mutual Fund Databases," Journal of Finance, American Finance Association, American Finance Association, vol. 56(6), pages 2415-2430, December.
  11. Christopher S. Ruebeck, 2002. "Interfirm Competition, Intrafirm Cannibalisation and Product Exit in the Market for Computer Hard Disk Drives," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 33(1), pages 119-131.
  12. Nicolaj Siggelkow, 2003. "Why Focus? A Study Of Intra-Industry Focus Effects," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 51(2), pages 121-150, 06.
  13. Almazan, Andres & Brown, Keith C. & Carlson, Murray & Chapman, David A., 2004. "Why constrain your mutual fund manager?," Journal of Financial Economics, Elsevier, Elsevier, vol. 73(2), pages 289-321, August.
  14. Hui Ou-Yang, 2003. "Optimal Contracts in a Continuous-Time Delegated Portfolio Management Problem," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 16(1), pages 173-208.
  15. 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, American Finance Association, vol. 51(1), pages 85-110, March.
  16. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 57-82, March.
  17. Goriaev, A.P. & Palomino, F.A. & Prat, A., 2000. "Mutual Fund Tournament: Risk Taking Incentives Induced by Ranking Objectives," Discussion Paper, Tilburg University, Center for Economic Research 2000-94, Tilburg University, Center for Economic Research.
  18. Alexander Kempf & Stefan Ruenzi, 2004. "Family Matters: The Performance Flow Relationship in the Mutual Fund Industry," Finance, EconWPA 0404012, EconWPA, revised 26 May 2004.
  19. Baye, Michael R & Crocker, Keith J & Ju, Jiandong, 1996. "Divisionalization, Franchising, and Divestiture Incentives in Oligopoly," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 223-36, March.
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