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Risk-taking responses to crash experience: Evidence from China

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  • Zhixiang Fang
  • Haoyu Xu
  • Yuanni Mu

Abstract

This study examines the effect of fund managers’ crash experience on their risk-taking behaviors. Using China’s 2007–2008 and 2014–2015 A-share market crashes, as well as the COVID-19 pandemic, as exogenous shocks, we find that managers with crash experiences significantly increased their overall risk-taking. We explain these findings using the lens of risk components, asset allocation, portfolio concentration, and incentive mechanisms. We also find that incentive mechanisms encourage these managers to take on greater risks and adopt more aggressive strategies, including increasing portfolio concentration and expanding securities holdings. These findings enrich behavioral finance theories on fund managers and provide insights for regulators to design more effective incentives and manage risk in the post-crisis periods.

Suggested Citation

  • Zhixiang Fang & Haoyu Xu & Yuanni Mu, 2026. "Risk-taking responses to crash experience: Evidence from China," PLOS ONE, Public Library of Science, vol. 21(4), pages 1-19, April.
    • Handle: RePEc:plo:pone00:0347543
    DOI: 10.1371/journal.pone.0347543
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    References listed on IDEAS

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    1. Kempf, Alexander & Ruenzi, Stefan & Thiele, Tanja, 2009. "Employment risk, compensation incentives, and managerial risk taking: Evidence from the mutual fund industry," Journal of Financial Economics, Elsevier, vol. 92(1), pages 92-108, April.
    2. Veronika K Pool & Noah Stoffman & Scott E Yonker & Hanjiang Zhang, 2019. "Do Shocks to Personal Wealth Affect Risk-taking in Delegated Portfolios?," The Review of Financial Studies, Society for Financial Studies, vol. 32(4), pages 1457-1493.
    3. Shashwat Alok & Nitin Kumar & Russ Wermers & Harrison Hong, 2020. "Do Fund Managers Misestimate Climatic Disaster Risk," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1146-1183.
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