Strategic Choice of Risk: Evidence from Mutual Fund Families

Chia-Ying Chan (), Christine W. Lai () and Liang-Chung Lee ()
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Chia-Ying Chan: Yuan Ze University
Christine W. Lai: National Taiwan Normal University
Liang-Chung Lee: Yuan Ze University

Journal of Financial Services Research, 2017, vol. 51, issue 1, No 5, 125-163

Abstract: Abstract This study examines family-level risk taking behavior from the perspective of the strategic choice of risk. We examine whether family-level risk taking tendency is affected by a fund family’s flow tournament position in the mutual fund industry. We use family-level excess fund flow, which is defined by the gap between the actual net flows and expected net flows of a fund family, to proxy for its interim fund-flow tournament position. A fund family is an interim winner (loser) if it experiences better (worse) than expected net flows. Two measures are used to proxy for risk taking strategy: (1) Active Share; and (2) the Standard Deviation of Fund Holdings at Family Level. Overall, we conclude that fund families classified as interim losers and top interim winners in a net flow tournament position exhibit risk taking propensities. Bottom dwellers increase risk for survival, whereas leaders increase risk to retain their leadership.

Keywords: Risk taking; Strategic choice of risk; Fund-flow tournament; Mutual fund family (search for similar items in EconPapers)
JEL-codes: G20 G23 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s10693-016-0242-5

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