Tournaments in Mutual Fund Families
In this paper we examine intra-firm competition in the mutual fund industry. Our empirical study of the US mutual fund industry shows for the first time that managers within mutual fund families compete against each other. They adjust the risk they take depending on the relative position within their fund family. In particular, we show that the direction of the adjustment crucially hinges on the competitive situation within a family. This behavior is in accordance with predictions derived from theoretical models. Our results have serious implications for investors, fund management companies and regulatory authorities.
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