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Beta or duration? Risk-taking by balanced mutual funds in Korea✰

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  • Park, Keun Woo
  • Han, Min Yeon
  • Oh, Ji Yeol Jimmy

Abstract

We examine the risk-taking behavior of balanced mandate managers in Korea between 2011 and 2018. Though it is well known that mutual fund managers face risk-taking incentives after poor performance, balanced mandate managers are unique in that they can choose between whether to take risks in either equities and/or bonds. We find that, following poor relative performance, bond-oriented balanced funds increase their systematic exposure to equities, while “reaching for duration” is confined to equity-oriented managers. Managers thus appear to increase risks in an asset category with a relatively lower portfolio weight. Systematic risk-taking attracts inflows but harms risk-adjusted performance.

Suggested Citation

  • Park, Keun Woo & Han, Min Yeon & Oh, Ji Yeol Jimmy, 2020. "Beta or duration? Risk-taking by balanced mutual funds in Korea✰," Finance Research Letters, Elsevier, vol. 33(C).
  • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612319302697
    DOI: 10.1016/j.frl.2019.07.002
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    References listed on IDEAS

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    Keywords

    Hybrid mutual funds; Holding beta; Holding duration; Fund performance;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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