Risk-shifting in institutionally-sponsored funds

Pyung Kun Chu

Finance Research Letters, 2022, vol. 47, issue PB

Abstract: In this study, I examine the flow-performance relation and risk-shifting behavior in institutionally-sponsored funds. The flow-performance relation is symmetric in institutionally-sponsored funds. Even with a symmetric flow-performance relation, which does not yield option-like incentives for risk-shifting, institutionally-sponsored funds still engage in risk-shifting behavior such that past losers increase risk more than past winners. This pattern of risk-shifting behavior is especially strong between long-term winners and losers, and between top and bottom performers. The prevalence of asymmetric performance-based fee contracts in institutionally-sponsored funds is a potential driver of their risk-shifting behavior.

Keywords: Fund flow; Risk-shifting; Institutionally-sponsored funds (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000988

DOI: 10.1016/j.frl.2022.102786

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