Does systemic risk affect fund managers' tail risk-taking?

Quansheng Xuan, Zhiyong Li and Tianyu Zhao

Pacific-Basin Finance Journal, 2024, vol. 83, issue C

Abstract: This paper investigates the impact of systemic risk on the tail risk-taking behavior of fund managers, based on the data from China's mutual funds from 2011 to 2021. We construct a systemic risk indicator by utilizing industry indices and market macro state variables, and find that systemic risk can markedly inhibit the tail risk-taking behavior of fund managers. This inhibition effect is strengthened by the performance ranking of funds. Within the tournament effect framework, fund managers tend to be more risk averse in order to secure the realized return, as the fund's ranking is primarily motivated by compensation incentives rather than career concerns. Moreover, given that the portfolio associated with a fund forms a network, we find that the information mechanism can attenuate the inhibition effect that systemic risk indicators have on the tail risk-taking behavior of fund managers.

Keywords: Systemic risk; Fund manager; Tail-risk taking; Fund network (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:83:y:2024:i:c:s0927538x24000209

DOI: 10.1016/j.pacfin.2024.102269

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