Publication Type

Working Paper

Publication Date

6-2008

Abstract

This paper re-examines the incentives of mutual fund managers arising from investor flows. We provide evidence that the convexity of the flow-performance relationship varies with economic activity. We show that the effect is economically large and is not driven by abnormal years. We test two possible channels through which this pattern may arise. We investigate implications of the timevarying convexity for the incentives of managers to alter strategically the risk of their portfolios. We provide evidence that poor mid-year performers increase the risk of the portfolio only when economic activity is strong. Finally, we briefly discuss some methodological implications.

Keywords

Mutual funds, Incentives, Flow-Performance Relationship, Convexity, Business Cycles

Discipline

Finance

Research Areas

Econometrics

First Page

1

Last Page

48

Publisher

Singapore Management University School of Economics, Paper No 10-2008

City or Country

Singapore

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Included in

Finance Commons

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