Relative Performance, Risk and Entry in the Mutual Fund Industry

Risk Behavior and Performance Benchmarks in the Mutual Fund Industry

The determinants of risk tolerance play an essential role in asset pricing. In this paper, I develop and test empirically a behavioral model of investor risk strategies. Difficulty in quantifying many of the elements of behavioral theories has so far necessitated experimental, rather than empirical, evaluation of most such models. Therefore, the methodology employed in this paper – testing a be...

The MUTUAL FUND INDUSTRY

Risk Shifting and Mutual Fund Performance∗

Mutual funds change their risk levels significantly over time. Risk shifting might be caused by ill-motivated trades of unskilled or agency-prone fund managers who trade to increase their personal compensation. Alternatively, risk shifting might occur when skilled fund managers trade to take advantage of their stock selection and timing abilities. This paper investigates the performance consequ...

Measuring Skill in the Mutual Fund Industry∗

Using the dollar-value that a mutual fund adds as the measure of skill, we find that the average mutual fund adds about $2 million per year and that this skill persists for as long as 10 years. We further document that investors recognize this skill and reward it by investing more capital with better funds. Better funds earn higher aggregate fees, and there is a strong positive correlation betw...

Seasonality and idiosyncratic risk in mutual fund performance

This paper examines the relationship between seasonality, idiosyncratic risk and mutual fund returns using multifactor models. We use a large sample containing the return histories of 728 UK mutual funds over a 23-year period to measure fund performance. We present evidence that idiosyncratic risk cannot be eliminated, we also find evidence of seasonality in all fund categories. Specifically, w...