Delegated Portfolio Management and Risk Taking Behavior (original) (raw)
Related papers
On the behavior of mutual fund investors and managers
2002
This thesis investigates empirically and theoretically the behavior of mutual fund investors and managers. These two aspects are closely related to each other. Investors try to select funds that follow an optimal investment policy from their point of view, while fund managers are typically interested in maximizing net fund inflows. In the first part of the thesis, we analyze the determinants of mutual fund flows, concentrating on the impact of past performance on fund flows. In particular, we investigate the lag structure of the flow-performance relationship and the impact of different classification systems on fund flows. In the second part of the thesis, we study the strategic behavior of mutual fund managers. In this part, we first consider the impact of auto-correlation and cross-correlation in fund returns on statistical tests of risk taking by fund managers performed in the literature. Finally, in a two-period model, we study risk-taking incentives of mutual fund managers with...
Three essays on fund managers’ abilities: learning, autonomy and divergent trading
2021
This chapter aims to fill the gap in the research on the learning process by mutual fund industry. The empirical design is focused on the ability of the Spanish equity mutual fund industry to learn from its important errors in important trading decisions. The choice of this industry is justified by both its relevance to the European mutual fund markets and some specific characteristics, such as its concentration and banking control that may affect the learning process. We use a model with dynamic panel data and find an overall significant decrease in the percentage of important trading errors over time that provides evidence of the global learning process by the industry. In addition, we find that a large number of fund families drives this evidence. Finally, in general terms, we show that the size of the fund family and its dependence on financial groups do not play significant roles in explaining the learning process of Spanish equity mutual funds.
A Theory of Mutual Funds: Optimal Fund Objectives and Industry Organization
SSRN Electronic Journal, 2000
This paper presents a model in which investors cannot remain in the market to trade at all times. As a result they have an incentive to set up trading firms or financial market intermediaries (FMI's) to take over their portfolio while they engage in other activities. Previous research has assumed that such firms act like individuals endowed with a utility function. Here, as in reality, they are firms that simply take orders from their investors. From this setting emerges a theory of mutual funds and other FMI's (such as investment houses, banks, and insurance companies) with implications for their trading styles, as well as for their effects on asset prices. The model provides theoretical support for past empirical findings, and provides new empirical predictions which are tested in this paper. JEL Classification: G20, G12 , , , i i i J f f f ! 0 2 1 ( ), ,..., , ( ) J P N i e e X i 2 ( ), (
Active Management and Mutual Fund Performance
Revista De Economia Aplicada, 2015
This paper analyses the relationship between active management and performance in US equity mutual funds over the period 2001-2011 for both gross and net returns. Mutual funds achieve nonzero abnormal performance through strategies that produce differentiated results which are not captured by risk factors. Active management is measured by time-varying parameters, idiosyncratic risk and turnover. The results show a negative aggregate performance close to zero. Performance is worse for non-survivor mutual funds. A U-shaped relation is found between active management and performance, thus both the best and the worst mutual funds show a higher level of active management. This behaviour is also found in the relationship between expenses and performance. Active management therefore implies selecting different strategies or investment bets with higher expenses and an unequal performance is achieved. However some level of persistence in the success of these bets is only fond for the best mu...
This study principally analyzes the fund managers' ability to outguess the market in Bangladesh. We perform the investigation on weekly data of 25 mutual funds for the period of May 16, 2010 to April 28, 2016. To serve our objective, we tested both selection and market timing skills of the fund managers. We have used six measures; average return, Sharpe ratio, Treynor ratio, Information ratio, Jensen's alpha and M square; to confirm the selection skill of fund managers and found no selection skill persistent to most of the fund managers (excluding Aims 1st M.F, ICB AMCL 2nd NRB M.F. and 6th ICB M.F.). In addition, the negative values of alpha indicate that fund managers become not only failed to add value to their portfolio, but also pool wrong assets which hurt the return resulting negative profit. On the other hand, we have employed two popular methodologies; Treynor and Mazuy [24] and Henriksson and Merton [10]; to test the market timing skill of fund managers and found no market timing skill persistent to the fund managers. Thus, with a little exception, we can conclude that fund managers have no ability to outguess the market in Bangladesh.
Performance Implications of Active Management of Institutional Mutual Funds
papers.ssrn.com
Although mutual fund performance has been dissected from almost every angle, very little attention has been paid to the connection between the actual active decisions made by management and the subsequent performance outcomes. In this paper we use information on institutional mutual funds to examine the implications of active positions and style tilts taken by management for the fund's realised alpha, tracking error and information ratio. We identify some areas where the funds across the entire sample have success (active positions, and growth and winning stock tilts) and others where they fall short (value and loser stock tilts). We identify that there is significant variation in these findings when we extend our analysis to examine the impact of these active decisions on performance for different styles of funds during periods of weak and strong markets. Finally, we repeat the analysis by incorporating the initial choice of investment style with the active decisions in order to judge their dual impact on investment performance.
Compensation and Managerial Herding: Evidence from the Mutual Fund Industry
SSRN Electronic Journal, 2007
We test the corporate theory of managerial herding based on reputation and career concerns (Scharfstein and Stein, 1990) by focusing on the mutual fund industry. We investigate the trade-off between reputation and compensation and study how incentives in the advisory contract affect managerial herding and risk taking. We consider two types of herding: category herding-the choice of operating in a category in which it is easier to preserve reputation, and stock herding-the choice of a trading strategy similar to the ones of the competitors. We show that a high incentive contract induces entry in categories in which an extreme performance realization is more likely, the adoption of trading strategies different from the ones being followed by other funds and higher risk taking. Family affiliation reduces (increases) the tendency to herd (to take risk) and, therefore, reduces the need for high incentive contracts. Moreover, unobserved actions of mutual funds with high incentive contracts induce managers to take performance-enhancing unobserved actions.