IDEAS home Printed from https://ideas.repec.org/a/eee/ememar/v59y2024ics1566014124000141.html
   My bibliography  Save this article

Mutual fund tournaments: State-dependent risk taking with transaction costs

Author

Listed:
  • Zhao, Lu
  • Wang, Liang
  • Luo, Ronghua

Abstract

We investigate the state-varying risk taking behavior of actively managed mutual funds by considering their transaction costs in trading securities. Our tournament model equilibrium suggests that, while transaction costs are low, interim winner funds tend to hold more volatile portfolios than interim losers. However, while transaction costs are high, the interim losers may take more risk than interim winners, and such behavior is more significant in the negative risk premium state for funds. We provide robust empirical evidence of state-varying risk-taking in both U.S. and China from 2005 to 2019. The U.S. mutual fund tournaments are less influenced given the bid-ask spreads on the stock market are 20 bps lower than that in China.

Suggested Citation

  • Zhao, Lu & Wang, Liang & Luo, Ronghua, 2024. "Mutual fund tournaments: State-dependent risk taking with transaction costs," Emerging Markets Review, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:ememar:v:59:y:2024:i:c:s1566014124000141
    DOI: 10.1016/j.ememar.2024.101119
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1566014124000141
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ememar.2024.101119?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Compensation incentive; Interim performance; Risk taking; Transaction cost;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ememar:v:59:y:2024:i:c:s1566014124000141. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620356 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.