Risk Taking by Mutual Funds as a Response to Incentives
This paper examines a potential agency conflict between mutual fund investors and mutual fund companies. Investors would like the fund company to use its judgment to maximize risk-adjusted fund returns, the fund company has an incentive to increase the inflow of investments. The authors estimate the shape of the flow-performance relationship for a sample of growth and growth and income funds observed over the 1982-92 period. The shape creates incentives for fund managers to alter the riskiness of their portfolios. Examining portfolio holdings, the authors find that risk levels are changed toward the end of the year in a manner consistent with these incentives. Copyright 1997 by the University of Chicago.
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.:
- Grinblatt, Mark & Titman, Sheridan D, 1989.
"Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings,"
The Journal of Business,
University of Chicago Press, vol. 62(3), pages 393-416, July.
- Mark Grinblatt & Sheridan Titman, . "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," Rodney L. White Center for Financial Research Working Papers 23-88, Wharton School Rodney L. White Center for Financial Research.
- William N. Goetzmann & Nadav Peles, 1997.
"Cognitive Dissonance And Mutual Fund Investors,"
Journal of Financial Research,
Southern Finance Association;Southwestern Finance Association, vol. 20(2), pages 145-158, 06.
- Ellison, G. & Ellison, F., 1993.
"A Simple Framework for Non-Parametric Specification Testing,"
Harvard Institute of Economic Research Working Papers
1662, Harvard - Institute of Economic Research.
- Ellison, Glenn & Ellison, Sara Fisher, 2000. "A simple framework for nonparametric specification testing," Journal of Econometrics, Elsevier, vol. 96(1), pages 1-23, May.
- Glenn Ellison & Sara Fisher Ellison, 1998. "A Simple Framework for Nonparametric Specification Testing," NBER Technical Working Papers 0234, National Bureau of Economic Research, Inc.
- Borenstein, Severin & Zimmerman, Martin B, 1988. "Market Incentives for Safe Commercial Airline Operation," American Economic Review, American Economic Association, vol. 78(5), pages 913-35, December.
- Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1985.
"Tournaments and Piece Rates: An Experimental Study,"
85-21, C.V. Starr Center for Applied Economics, New York University.
- Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987. "Tournaments and Piece Rates: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 1-33, February.
- Bengt Holmstrom & Paul R. Milgrom, 1985.
"Aggregation and Linearity in the Provision of Intertemporal Incentives,"
Cowles Foundation Discussion Papers
742, Cowles Foundation for Research in Economics, Yale University.
- Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March.
- Scharfstein, David. & Stein, Jeremy C., 1988.
"Herd behavior and investment,"
WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- repec:sae:ilrrev:v:43:y:1990:i:3:p:74-88 is not listed on IDEAS
- Borland, Jeff, 1992. " Career Concerns: Incentives and Endogenous Learning in Labour Markets," Journal of Economic Surveys, Wiley Blackwell, vol. 6(3), pages 251-70.
- Ronald G. Ehrenberg & Michael L. Bognanno, 1988.
"Do Tournaments Have Incentive Effects?,"
NBER Working Papers
2638, National Bureau of Economic Research, Inc.
- Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
- Mark Grinblatt & Sheridan Titman, . "Portfolio Performance Evaluation: Old Issues and New Insights," Rodney L. White Center for Financial Research Working Papers 22-88, Wharton School Rodney L. White Center for Financial Research.
- Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
- Zwiebel, Jeffrey, 1995. "Corporate Conservatism and Relative Compensation," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 1-25, February.
- 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.
- Ippolito, Richard A, 1992. "Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 45-70, April.
When requesting a correction, please mention this item's handle: RePEc:ucp:jpolec:v:105:y:1997:i:6:p:1167-1200. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.